ESSENDANT INC (Form: 10-Q, Received: 10/21/2015 17:05:06)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-10653

ESSENDANT INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

36-3141189

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

One Parkway North Boulevard

Suite 100

Deerfield, Illinois 60015-2559

(847) 627-7000

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

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

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

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

Large accelerated filer	x	Accelerated filer	¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

On October 19, 2015, the registrant had outstanding 37,391,273 shares of common stock, par value $0.10 per share.

ESSENDANT INC.

FORM 10-Q

For the Quarterly Period Ended September 30, 2015

TABLE OF CONTENTS

		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014		3
Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2015 and 2014		4
Condensed Consolidated Statements of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2015 and 2014		5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4. Controls and Procedures		29
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		29
Item 1A. Risk Factors		29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30
Item 6. Exhibits		31
SIGNATURES		32

P ART I – FINANCIAL INFORMATION

I TEM 1.

FINANCIAL STATEMENTS

ESSENDANT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	(Unaudited)			(Unaudited)
	As of September 30,			As of December 31,
	2015			2014 (Revised)
ASSETS
Current assets:
Cash and cash equivalents	$	28,047		$	20,812
Accounts receivable, less allowance for doubtful accounts of $18,079 in 2015 and $19,725 in 2014		737,979			702,527
Inventories		860,355			906,430
Other current assets		31,946			30,713
Total current assets		1,658,327			1,660,482
Property, plant and equipment, net		129,744			138,217
Goodwill		413,178			398,042
Intangible assets, net		102,760			111,958
Other long-term assets		36,282			38,669
Total assets	$	2,340,291		$	2,347,368
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	540,949		$	485,241
Accrued liabilities		186,826			185,535
Current maturities of long-term debt		43			851
Total current liabilities		727,818			671,627
Deferred income taxes		15,119			17,763
Long-term debt		666,142			709,917
Other long-term liabilities		98,621			104,394
Total liabilities		1,507,700			1,503,701
Stockholders’ equity:
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2015 and 2014		7,444			7,444
Additional paid-in capital		408,475			412,291
Treasury stock, at cost – 36,874,672 shares in 2015 and 35,719,041 shares in 2014		(1,090,624	)		(1,042,501	)
Retained earnings		1,564,816			1,529,224
Accumulated other comprehensive loss		(57,520	)		(62,791	)
Total stockholders’ equity		832,591			843,667
Total liabilities and stockholders’ equity	$	2,340,291		$	2,347,368

See notes to condensed consolidated financial statements.

ESSENDANT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2015		2014 (Revised)		2015		2014 (Revised)
Net sales	$	1,391,545	$	1,419,947	$	4,065,719	$	3,994,123
Cost of goods sold		1,166,402		1,203,246		3,430,062		3,400,992
Gross profit		225,143		216,701		635,657		593,131
Operating expenses:
Warehousing, marketing and administrative expenses		172,159		148,831		526,653		438,538
Operating income		52,984		67,870		109,004		154,593
Interest expense, net		5,300		3,992		14,918		11,199
Income before income taxes		47,684		63,878		94,086		143,394
Income tax expense		20,017		23,647		42,594		53,349
Net income	$	27,667	$	40,231	$	51,492	$	90,045
Net income per share - basic:	$	0.74	$	1.05	$	1.36	$	2.32
Average number of common shares outstanding - basic		37,300		38,450		37,724		38,817
Net income per share - diluted:	$	0.74	$	1.03	$	1.35	$	2.29
Average number of common shares outstanding - diluted		37,608		38,884		38,109		39,244
Dividends declared per share	$	0.14	$	0.14	$	0.42	$	0.42

See notes to condensed consolidated financial statements.

ESSENDANT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2015			2014 (Revised)			2015			2014 (Revised)
Net income	$	27,667		$	40,231		$	51,492		$	90,045
Other comprehensive income, net of tax
Translation adjustments		7,497			(1,395	)		3,076			(1,378	)
Minimum pension liability adjustments		967			606			2,831			1,767
Cash flow hedge adjustments		(208	)		446			(636	)		(339	)
Total other comprehensive gain (loss), net of tax		8,256			(343	)		5,271			50
Comprehensive income	$	35,923		$	39,888		$	56,763		$	90,095

See notes to condensed consolidated financial statements.

ESSENDANT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

	For the Nine Months Ended
	September 30,
	2015			2014 (Revised)
Cash Flows From Operating Activities:
Net income	$	51,492		$	90,045
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		36,344			29,699
Share-based compensation		6,447			5,935
Loss on the disposition of property, plant and equipment		1,562			97
Amortization of capitalized financing costs		659			657
Excess tax benefits related to share-based compensation		(402	)		(1,166	)
Asset impairment charges		34,893			-
Loss on sale of equity investment		33			-
Deferred income taxes		(15,285	)		(9,134	)
Changes in operating assets and liabilities (net of acquisitions):
Increase in accounts receivable, net		(31,288	)		(104,540	)
Decrease in inventory		54,354			51,974
(Increase) decrease in other assets		(8,720	)		10,000
Increase in accounts payable		8,972			24,663
Increase (decrease) in checks in-transit		41,440			(2,679	)
Increase in accrued liabilities		6,500			2,883
Decrease in other liabilities		(3,342	)		(4,768	)
Net cash provided by operating activities		183,659			93,666
Cash Flows From Investing Activities:
Capital expenditures		(18,133	)		(15,431	)
Proceeds from the disposition of property, plant and equipment		184			872
Acquisitions, net of cash acquired		(40,471	)		(26,725	)
Proceeds from sale of equity investment		612			-
Net cash used in investing activities		(57,808	)		(41,284	)

Cash Flows From Financing Activities:
Net repayments under revolving credit facility		(45,309	)		(12,094	)
Borrowings under Receivables Securitization Program		-			9,300
Repayment of debt		-			(135,000	)
Proceeds from the issuance of debt		-			150,000
Net disbursements from share-based compensation arrangements		(1,507	)		(3,142	)
Acquisition of treasury stock, at cost		(55,677	)		(43,037	)
Payment of cash dividends		(15,976	)		(16,407	)
Excess tax benefits related to share-based compensation		402			1,166
Payment of debt issuance costs		(36	)		(623	)
Net cash used in financing activities		(118,103	)		(49,837	)
Effect of exchange rate changes on cash and cash equivalents		(513	)		(33	)
Net change in cash and cash equivalents		7,235			2,512
Cash and cash equivalents, beginning of period		20,812			22,326
Cash and cash equivalents, end of period	$	28,047		$	24,838
Other Cash Flow Information:
Income tax payments, net	$	53,704		$	55,867
Interest paid		16,032			9,838

See notes to condensed consolidated financial statements.

ESSENDANT INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

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

The accompanying Condensed Consolidated Financial Statements are unaudited. The Condensed Consolidated Balance Sheet as of December 31, 2014, was derived from the December 31, 2014 audited financial statements with certain line items being restated for changes in accounting principles. See Note 2, “Change in Accounting Principles,” for additional details. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements, prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. Accordingly, the reader of this Quarterly Report on Form 10-Q should refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for further information.

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

New Accounting Pronouncements

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

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

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

In May 2014, the F ASB issued ASU No. 2014-09, Revenue f rom Contracts w ith 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 tha t 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 t he 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. 2 014-09. This standard is effective for fiscal years b eginning after December 15, 2017 , including interim periods within that reporting period , and early application is permitted for fiscal years beginning after December 15, 2016, 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.

Inventory

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

2. Change in Accounting Principles

Change in Method of Accounting for Inventory Valuation

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

Change in Method of Accounting for Debt Issuance Costs

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

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

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

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

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

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

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

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

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

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

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



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

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

	As of and for the Three Months Ended September 30, 2014									As of and for the Three Months Ended June 30, 2014									As of and for the Three Months Ended March 31, 2014
	Previous Method			As Reported			Effect of Change			Previous Method			As Reported			Effect of Change			Previous Method			As Reported			Effect of Change
Consolidated Statement of Income
Cost of goods sold ^(A)	$	1,208,919		$	1,203,246		$	(5,673	)	$	1,120,577		$	1,124,485		$	3,908		$	1,067,056		$	1,073,261		$	6,205
Gross profit ^(A)		211,028			216,701			5,673			199,460			195,552			(3,908	)		187,083			180,878			(6,205	)
Warehousing, marketing, and administrative expenses ^(A)		146,560			148,831			2,271			142,186			142,870			684			148,849			146,837			(2,012	)
Income before income taxes ^(A)		60,476			63,878			3,402			53,441			48,849			(4,592	)		34,860			30,667			(4,193	)
Income tax expense ^(A)		22,307			23,647			1,340			20,110			18,327			(1,783	)		13,003			11,375			(1,628	)
Net income ^(A)		38,169			40,231			2,062			33,331			30,522			(2,809	)		21,857			19,292			(2,565	)
Net income per share ^(A)
Basic ^(A)	$	0.99		$	1.05		$	0.06		$	0.86		$	0.79		$	(0.07	)	$	0.56		$	0.49		$	(0.07	)
Diluted ^(A)	$	0.98		$	1.03		$	0.05		$	0.85		$	0.78		$	(0.07	)	$	0.55		$	0.49		$	(0.06	)

Consolidated Statement of Comprehensive Income
Net income ^(A)	$	38,169		$	40,231		$	2,062		$	33,331		$	30,522		$	(2,809	)	$	21,857		$	19,292		$	(2,565	)
Comprehensive income ^(A)		37,826			39,888			2,062			33,847			31,038			(2,809	)		21,734			19,169			(2,565	)

Consolidated Statement of Financial Position
Inventories ^(A)	$	796,325		$	782,158		$	(14,167	)	$	804,395		$	786,826		$	(17,569	)	$	748,499		$	735,522		$	(12,977	)
Other long-term assets ^(B)		24,372			21,197			(3,175	)		26,059			22,662			(3,397	)		27,170			23,459			(3,711	)
Accrued liabilities ^(A)		189,224			183,737			(5,487	)		187,414			180,587			(6,827	)		177,251			172,207			(5,044	)
Long-term debt ^(B)		545,009			541,834			(3,175	)		542,410			539,013			(3,397	)		561,511			557,800			(3,711	)
Retained earnings ^(A)		1,521,230			1,512,550			(8,680	)		1,488,469			1,477,727			(10,742	)		1,460,582			1,452,649			(7,933	)



	For the Nine Months Ended September 30, 2014									For the Six Months Ended June 30, 2014									For the Three Months Ended March 31, 2014
	Previous Method			As Reported			Effect of Change			Previous Method			As Reported			Effect of Change			Previous Method			As Reported			Effect of Change
Consolidated Statement of Cash Flows
Net income ^(A)	$	93,357		$	90,045		$	(3,312	)	$	55,188		$	49,814		$	(5,374	)	$	21,857		$	19,292		$	(2,565	)
Deferred income taxes ^(A)		(7,618	)		(9,134	)		(1,516	)		(5,317	)		(6,381	)		(1,064	)		(2,450	)		(2,437	)		13
Inventories ^(A)		46,591			51,974			5,383			39,290			48,075			8,785			81,714			85,907			4,193
Accrued liabilities ^(A)		3,438			2,883			(555	)		(1,106	)		(3,453	)		(2,347	)		(13,654	)		(15,295	)		(1,641	)
Cash provided by operating activities ^(A)		93,666			93,666			-			78,889			78,889			-			1,490			1,490			-

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

3 . Acquisitions and Dispositions

Acquisitions

CPO Commerce, Inc.

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

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

MEDCO

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

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

Nestor Sales LLC

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

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

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

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

At September 30, 2015, t he al location s of the purchase price s were as follows (amounts in thousands):

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

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

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

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

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

Disposition of Azerty de Mexico

On September 18, 2015, the Company completed the 100% stock-sale of its subsidiary, Azerty de Mexico, to the local general manager. The sale price was a combination of cash and a seller’s note, totaling $8.7 million. The seller’s note matures in 180 days and requires periodic repayments. When the decision to sell the subsidiary was approved, in accordance with Accounting Standards Codification (ASC) 360-10-45-9 Property, Plant, and Equipment , Azerty de Mexico met all of the criteria to be classified as a held-for-sale asset disposal group. In accordance with ASC 350-20-40, Intangibles – Goodwill and Other , the Company allocated a proportionate share of the goodwill balance from the office product and janitorial and breakroom supply reporting unit based on the subsidiary’s relative fair value to the reporting unit and performed an impairment test for the allocated goodwill utilizing the cost approach to value the subsidiary. Based upon the impairment test, the $3.3 million of goodwill allocated to the subsidiary was determined to be fully impaired. Additionally, in conjunction with classifying the subsidiary as a held-for-sale asset disposal group, the Company revalued the subsidiary to fair value using the cost-approach method less the estimated cost to sell. The carrying value of the disposal group, including a $10.1 million cumulative foreign currency translation adjustment, was then compared to the fair value less the estimated cost to sell, resulting in a pre-tax impairment loss of $10.1 million. The goodwill impairment of $3.3 million, the held-for-sale impairment of $10.1 million and the $0.1 million estimated cost to sell were recorded in the first quarter of 2015 within “warehousing, marketing and administrative expenses.” During the second and third quarters, the Company recorded an additional $1.4 million and $2.1 million, respectively, within “warehousing, marketing and administrative expenses.” This includes a $1.5 million loss on sale. The pre-tax loss, excluding the foreign currency translation adjustment noted above, attributable to Azerty de Mexico for the three months ended September 30, 2015 and 2014 was $0.9 million and $0.2 million, respectively. The pre-tax loss attributable to this subsidiary for the nine months ended September 30, 2015 was $5.2 million and none for the nine months ended September 30, 2014.

4 . Share-Based Compensation

As of September 30, 2015, the Company has two active equity compensation plans. On May 20, 2015 the Company’s stockholders approved certain amendments to the Amended and Restated 2004 Long-Term Incentive Plan (“LTIP) which included the renaming of the LTIP to the “2015 Long-Term Incentive Plan” (as amended and restated, the “2015 Plan”). Under the 2015 Plan, award vehicles 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 retainer and meeting fees.

The Company granted 440,948 shares of restricted stock and 162,092 RSUs during the first nine months of 2015. No stock options were granted during the first nine months of 2015. During the first nine months of 2014, the Company granted 229,477 shares of restricted stock, 176,717 RSUs, and 5,538 stock options.

5. Severance and Restructuring Charges

The Company began certain restructuring actions in 2015 which included workforce reductions and facility consolidations. For the three months and nine months ended September 30, 2015, the Company recorded $0.2 million and $1.5 million pre-tax expense relating to facility consolidations, respectively. During the first quarter of 2015, the Company recorded a $6.0 million pre-tax charge relating to a workforce reduction. These charges were included in “warehousing, marketing and administrative expenses.” Cash outflows for these actions will occur primarily in 2015 and were approximately $3.0 million in the nine months ended September 30, 2015. As of September 30, 2015, the Company has accrued liabilities for these actions of $3.1 million. The Company estimated an additional $1.5 million will be incurred in the remainder of 2015 due to facility closures related to this action, for a total 2015 expense of approximately $9.0 million.

6. Goodwill and Intangible Assets

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

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

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

	September 30, 2015								December 31, 2014
								Weighted								Weighted
								Average								Average
	Gross					Net		Useful	Gross					Net		Useful
	Carrying		Accumulated			Carrying		Life	Carrying		Accumulated			Carrying		Life
	Amount		Amortization			Amount		(years)	Amount		Amortization			Amount		(years)
Intangible assets subject to amortization
Customer relationships and other intangibles	$	138,864	$	(48,659	)	$	90,205	16	$	125,761	$	(41,123	)	$	84,638	16
Non-compete agreements		4,650		(3,260	)		1,390	4		4,672		(2,364	)		2,308	4
Trademarks		12,833		(3,268	)		9,565	14		14,428		(1,716	)		12,712	13
Total	$	156,347	$	(55,187	)	$	101,160		$	144,861	$	(45,203	)	$	99,658
Intangible assets not subject to amortization
Trademarks		1,600		-			1,600	n/a		12,300		-			12,300	n/a
Total	$	157,947	$	(55,187	)	$	102,760		$	157,161	$	(45,203	)	$	111,958

I n the first quarter of 2015, the Company recor ded 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 effective June 1, 2015 . This impairment charge was recorded in “war ehousing, marketing and administrative expenses.” The Company utilized the discounted cash flow method to determine the fair value of the se trademarks based upon management’s current forecasted future revenues from the trademarks. The trademarks had a tota l value of $ 0 . 5 million at September 30, 2015 .

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

Year	Amount
2015	$	15,156
2016		13,113
2017		10,956
2018		8,088
2019		6,953

7. Accumulated Other Comprehensive Income (Loss)

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

	Foreign Currency Translation			Cash Flow Hedges			Defined Benefit Pension Plans			Total
AOCI, balance as of December 31, 2014	$	(11,923	)	$	274		$	(51,142	)	$	(62,791	)
Other comprehensive (loss) income before reclassifications		(8,056	)		(1,291	)		-			(9,347	)
Amounts reclassified from AOCI		11,132			655			2,831			14,618
Net other comprehensive (loss) income		3,076			(636	)		2,831			5,271
AOCI, balance as of September 30, 2015	$	(8,847	)	$	(362	)	$	(48,311	)	$	(57,520	)

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

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

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

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

8 . Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if dilutive securities were exercised into common stock. Stock options, restricted stock, restricted stock units and deferred stock units are considered dilutive securities. For the three-month period ending September 30, 2015, 0.4 million shares of such securities were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive. For the nine-month period ending September 30, 2015, no shares of securities were excluded from the computation. For the three-month and nine-month periods ending September 30, 2014, 0.5 million shares of such securities, were not included because the effect would be antidilutive. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2015		2014		2015		2014
Numerator:
Net income	$	27,667	$	40,231	$	51,492	$	90,045
Denominator:
Denominator for basic earnings per share -
weighted average shares		37,300		38,450		37,724		38,817
Effect of dilutive securities:
Employee stock options and restricted stock		308		434		385		427
Denominator for diluted earnings per share -
Adjusted weighted average shares and the effect of dilutive securities		37,608		38,884		38,109		39,244
Net income per share:
Net income per share - basic	$	0.74	$	1.05	$	1.36	$	2.32
Net income per share - diluted	$	0.74	$	1.03	$	1.35	$	2.29

Common Stock Repurchases

As of December 31, 2014, the Company had Board authorization to repurchase $42.4 million of common stock. In February 2015, the Board of Directors authorized the Company to purchase an additional $100.0 million of common stock. During the three-month periods ended September 30, 2015 and 2014, the Company repurchased 744,081 and 283,283 shares of the Company’s common stock at an aggregate cost of $25.9 million and $11.4 million, respectively. During the nine-month periods ended September 30, 2015 and 2014, the Company repurchased 1,525,222 and 1,074,574 shares of the Company’s common stock at an aggregate cost of $57.4 million and $43.0 million, respectively. Depending on market and business conditions and other factors, the Company may continue or suspend purchasing its common stock at any time without notice. Acquired shares are included in the issued shares of the Company and treasury stock, but are not included in average shares outstanding when calculating earnings per share data. During the first nine months of 2015 and 2014, the Company reissued 369,591 and 225,783 shares, respectively, of treasury stock to fulfill its obligations under its equity incentive plans.

9. Debt

ESND is a holding company and, as a result, its primary sources of funds are cash generated from operating activities of its direct operating subsidiary, Essendant Co., and from borrowings by Essendant Co. The 2013 Credit Agreement, the 2013 Note Purchase Agreement, and the Receivables Securitization Program (each as defined in Note 9 of the Company’s Form 10-K for the year ended December 31, 2014) restrict Essendant Co.’s ability to transfer cash to ESND.

Debt consisted of the following amounts (in millions):

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

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

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

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

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

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

As of September 30, 2015 and December 31, 2014, $414.2 million and $360.3 million, respectively, of receivables had been sold to the Investors (as defined in Note 9 of the Company’s Form 10-K for the year ended December 31, 2014). ESR had $200.0 million outstanding under the Receivables Securitization Program as of September 30, 2015 and December 31, 2014.

For additional information about the 2013 Credit Agreement, the 2013 Note Purchase Agreement, and the Receivables Securitization Program, see Note 9 of the Company’s Form 10-K for the year ended December 31, 2014.

10. Pension and Post-Retirement Benefit Plans

The Company maintains pension plans covering union and certain non-union employees. For more information on the Company’s retirement plans, see Note 11 to the Company’s Consolidated Financial Statements in the Form 10-K for the year ended December 31, 2014. A summary of net periodic pension cost related to the Company’s pension plans for the three and nine months ended September 30, 2015 and 2014 was as follows (dollars in thousands):

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

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

Defined Contribution Plan

The Company has defined contribution plans covering certain salaried associates and non-union hourly paid associates (the “Plan”). The Plan permits associates to defer a portion of their pre-tax and after-tax salary as contributions to the Plan. The Plan also provides for Company-funded discretionary contributions as well as matching associates’ salary deferral contributions, at the discretion of the Board of Directors. The Company recorded expense of $1.5 million and $4.4 million for the Company match of employee contributions to the Plan for the three and nine months ended September 30, 2015. During the same periods last year, the Company recorded expense of $1.4 million and $4.2 million to match employee contributions.

1 1 . Derivative Financial Instruments

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

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

During the third quarter of 2015, the Company implemented a foreign currency cash flow hedge program in order to manage the volatility in exchange rates and the related impacts on the operations of its Canadian functional currency subsidiaries. The Company uses foreign currency exchange contracts to hedge certain of its foreign exchange rate exposures related to inventory purchases. The Company has currently hedged approximately 50%, or $5.6 million, of its Canadian subsidiaries’ US dollar denominated inventory purchases for the next two quarters. The fair value is determined by using quoted market spot rates (level 2 inputs). The changes in fair value of ASC 815 designated hedges are reported in AOCI and reclassified into earnings in the same financial statement line item and in the same periods during which the related inventory is sold and affects earnings. As of September 30, 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 and nine months ended September 30, 2015 and September 30, 2014 (in thousands).

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

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

12. Fair Value Measurements

The Company measures certain financial assets and liabilities, including interest rate swap and foreign currency derivatives, at fair value on a recurring basis, based on market rates of the Company’s positions and other observable interest rates (see Note 11 “Derivative Financial Instruments”, for more information on these interest rate swaps and foreign currency derivatives).

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

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

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

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

Determining which level to apply to an asset or liability requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The following table summarizes the financial instruments measured at fair value in the accompanying Condensed Consolidated Balance Sheets as of September 30 , 2015 and December 31, 201 4 (in thousands):

	Fair Value Measurements as of September 30, 2015
			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 hedge	$	50	$	-	$	50	$	-

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

	Fair Value Measurements as of December 31, 2014
			Quoted Market Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		Level 1		Level 2		Level 3
Liabilities
Interest rate swap liability	$	253	$	-	$	253	$	-

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

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

13. Other Assets and Liabilities

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

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

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

14. Income Taxes

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

For the three and nine months ended September 30, 2015, the Company recorded income tax expense of $20.0 million and $42.6 million on pre-tax income of $47.7 million and $94.1 million, for an effective tax rate of 42.0% and 45.3%, respectively. For the three months and nine months ended September 30, 2014, the Company recorded income tax expense of $23.6 million and $53.3 million on pre-tax income of $63.9 million and $143.4 million, respectively, for an effective tax rate of 37.0% and 37.2%, respectively.

The Company's U.S. statutory rate is 35.0%. 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 selling a non-strategic business in the third quarter. There were no significant discrete items for the three and nine months ended September 30, 2014.

15. Legal Matters

The Company has been named as a defendant in an action filed before the United States District Court for the Central District of California on May 1, 2015. The complaint alleges that the Company sent unsolicited fax advertisements to two named plaintiffs, as well as thousands of other persons and entities, in violation of the Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005 ("TCPA"). After filing the complaint, the plaintiff filed a motion asking the Court to certify a class of plaintiffs comprised of persons and entities who allegedly received fax advertisements from the Company. Under the TCPA, recipients of unsolicited fax advertisements can seek damages of $500 per fax for inadvertent violations and up to $1,500 per fax for knowing and willful violations. Other reported TCPA lawsuits have resulted in a broad range of outcomes, with each case being dependent on its own unique set of facts and circumstances. The Company is vigorously contesting class certification and liability. Litigation of this kind, however, is likely to lead to settlement negotiations, including negotiations prompted by pre-trial civil court procedures. Regardless of whether the litigation is 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.

I TEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements often contain words such as “expects,” “anticipates,” “estimates,” “intends,” “plans,” “believes,” “seeks,” “will,” “is likely,” “scheduled,” “positioned to,” “continue,” “forecast,” “predicting,” “projection,” “potential” or similar expressions. Forward-looking statements include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These forward-looking statements are based on management’s current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, without limitation, those set forth in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2014.

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

Company Overview

Essendant Inc. (formerly known as United Stationers Inc.) is a leading supplier of workplace essentials, with 2014 net sales of approximately $5.3 billion. Essendant Inc. stocks over 160,000 items from over 1,600 manufacturers. These items include a broad spectrum of manufacturer-branded and private branded technology products, traditional office products, office furniture, janitorial and breakroom supplies, and industrial supplies. Essendant sells through a network of 79 distribution centers to approximately 30,000 reseller customers, who in turn sell directly to end consumers.

Our strategy is comprised of three key elements:

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

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

3) Expand and diversify our business into channels and categories that leverage our common platform which includes the IT systems, distribution network, data infrastructure, digital expertise and functional capabilities in merchandising, sales and operations.

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

Key Trends and Recent Results

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

Third Quarter Results

Third quarter sales were $1.39 billion, down 2.0% from the prior-year quarter. Acquisitions in the last 12 months contributed $81.2 million of incremental sales in the industrial supplies category. Excluding these acquisitions, sales in the industrial supply category declined 12.6% due to energy sector impacts. Sales in the janitorial and breakroom and office products categories declined 1.8% and 9.5% respectively. We expect low-to-mid single digit sales growth across our categories starting in the second half of 2016.

·	The gross margin rate in the third quarter of 2015 was 16.2%, compared to the prior-year quarter gross margin rate of 15.3%. Gross profit for the third quarter of 2015 was $225.1 million, compared to $216.7 million in the third quarter of 2014.

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

Operating income for the quarter ended September 30, 2015 was $53.0 million or 3.8% of sales, including $13.5 million of expense related to the third quarter charges. Adjusted operating income in the third quarter of 2015 was $66.5 million or 4.8% of sales, versus $67.9 million or 4.8% of sales in the third quarter of 2014.

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

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

Repositioning for Sustained Success

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

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

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

We will exit certain non-strategic channels and categories during 2015 to further align our portfolio of product categories and channels with our strategies. During the third quarter of 2015, we sold 100% of the capital stock of Azerty de Mexico, a non-strategic subsidiary with operations in Mexico. Azerty de Mexico had been classified as held for sale since the first quarter of 2015. Related to this classification and the sale, we have recorded $17.0 million of charges in the first nine months of 2015. This subsidiary had sales of $50.1 million in the first nine months of 2015 compared to $77.2 million in the same period of last year.

On June 1, 2015 we officially rebranded to Essendant Inc. in order to communicate more accurately our purpose and vision. When we announced in the first quarter of 2015 our decision to rebrand the company, the ORS Nasco trademark and certain OKI brands were tested for impairment. Upon completion of the impairment test of these intangible assets, management determined the trademarks were impaired and recorded a pre-tax, non-cash, impairment charge and accelerated amortization totaling $11.5 million in the first nine months of 2015. It was also determined that the useful lives do not extend past 2015. The remaining value of these intangibles was $0.5 million at September 30, 2015.

Fourth Quarter Cost Initiative

We remain committed to our strategy and have executed well on our priorities. However, additional steps must be taken to reduce cost through management de-layering in order to achieve broader functional alignment of the organization and to counteract headwinds in the industrial and energy markets. In the fourth quarter we plan to implement new workforce reductions as we transition to a channel-based organization more closely aligned with our customers, and re-invest a portion of the expected savings to fund bringing additional businesses onto the common platform. These actions are critical to driving our goal of achieving high-single digit EPS growth beginning in 2016.

For a further discussion of selected trends, events or uncertainties the Company believes may have a significant impact on its future performance, readers should refer to “Key Trends and Recent Results” under Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2014.

Critical Accounting Policies, Judgments and Estimates

Change in Method of Accounting for Inventory Valuation

In the third quarter of 2015, the Company changed its method of inventory costing for certain inventory in its Business and Facility Essentials (formerly separately known as Supply and Lagasse) operating segment to the last-in-first-out (“LIFO”) method from the first-in-first-out (“FIFO”) accounting method. For further discussion of the Company’s change in the method of inventory costing, refer to Note 2, “Change in Accounting Principles.”

Adjusted Operating Income, Net Income and Earnings Per Share

The following tables presents Adjusted Operating Expenses, Adjusted Operating Income, Adjusted Net Income, and Adjusted Diluted Earnings Per Share for the three and nine-month periods ended September 30, 2015 and 2014 (in thousands, except per share data) excluding the effects of the pre-tax charges related to workforce reductions and facility consolidations, intangible asset impairment charge and accelerated amortization related to rebranding efforts, an impairment of seller notes receivable related to the company’s prior year sale of its software service provider, and a loss on sale and related costs of our Mexican subsidiary. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income. Management believes that excluding these items is an appropriate comparison of its ongoing operating and to the results of last year. It is helpful to provide readers of its financial statements with a reconciliation of these items to its Condensed Consolidated Statements of Income reported in accordance with Generally Accepted Accounting Principles.

	For the Three Months Ended September 30,
	2015						2014 (Revised)
				% to					% to
	Amount			Net Sales			Amount		Net Sales
Net Sales	$	1,391,545			100.0	%	$	1,419,947		100.0	%
Gross profit	$	225,143			16.2	%	$	216,701		15.3	%
Operating expenses	$	172,159			12.4	%	$	148,831		10.5	%
Workforce reduction and facility consolidation charge		(200	)		-			-		-
Rebranding - intangible asset amortization		(511	)		-			-		-
Notes receivable impairment		(10,738	)		(0.8	%)
Loss on sale of business and related costs		(2,072	)		(0.1	%)		-		-
Adjusted operating expenses	$	158,638			11.4	%	$	148,831		10.5	%
Operating income	$	52,984			3.8	%	$	67,870		4.8	%
Operating expense items noted above		13,521			1.0	%		-		-
Adjusted operating income	$	66,505			4.8	%	$	67,870		4.8	%
Net income	$	27,667					$	40,231
Operating expense items noted above, net of tax		10,017						-
Adjusted net income	$	37,684					$	40,231
Diluted earnings per share	$	0.74					$	1.03
Per share operating expense items noted above		0.26						-
Adjusted diluted earnings per share	$	1.00					$	1.03
Adjusted diluted earnings per share - change over the prior year period		(2.9	%)
Weighted average number of common shares - diluted		37,608						38,884

	For the Nine Months Ended September 30,
	2015						2014 (Revised)
				% to					% to
	Amount			Net Sales			Amount		Net Sales
Net Sales	$	4,065,719			100.0	%	$	3,994,123		100.0	%
Gross profit	$	635,657			15.6	%	$	593,131		14.9	%
Operating expenses	$	526,653			13.0	%	$	438,538		11.0	%
Workforce reduction and facility consolidation charge		(6,495	)		(0.2	%)		-		-
Rebranding - intangible asset impairment and amortization		(11,485	)		(0.3	%)		-		-
Notes receivable impairment		(10,738	)		(0.3	%)
Loss on sale of business and related costs		(16,999	)		(0.4	%)		-		-
Adjusted operating expenses	$	480,936			11.8	%	$	438,538		11.0	%
Operating income	$	109,004			2.7	%	$	154,593		3.9	%
Operating expense items noted above		45,717			1.1	%		-		-
Adjusted operating income	$	154,721			3.8	%	$	154,593		3.9	%
Net income	$	51,492					$	90,045
Operating expense items noted above, net of tax		34,854						-
Adjusted net income	$	86,346					$	90,045
Diluted earnings per share	$	1.35					$	2.29
Per share operating expense items noted above		0.91						-
Adjusted diluted earnings per share	$	2.26					$	2.29
Adjusted diluted earnings per share - change over the prior year period		(1.3	%)
Weighted average number of common shares - diluted		38,109						39,244

Results of Operations—Three Months Ended September 30, 2015 Compared with the Three Months Ended September 30, 2014

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

	Three Months Ended September 30,
	2015		2014 ⁽¹⁾
Janitorial and breakroom supplies	$	375,454	$	382,308
Technology products		343,891		384,591
Traditional office products (including cut-sheet paper)		320,736		360,848
Industrial supplies		223,510		162,813
Office furniture		87,409		85,090
Freight revenue		33,264		33,302
Services, Advertising and Other		7,281		10,995
Total net sales	$	1,391,545	$	1,419,947

(1)	Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications include changes to shift to a single operational item hierarchy. These changes did not impact the Condensed Consolidated Statements of Income.

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

S ales in the technology products category (primarily ink and toner) decreased 10.6% from the third quarter of 2014. This category accounted for 24.7% of net sales for the third quarter of 2015. This decline is primarily attributable to the loss of business with large national customers, lower sales to the independent dealer channel, and lower sales at our Mexican subsidiary which was sold in the third quarter. These were partially offset by growth in e-tail customers.

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

Industrial supplies sales in the third quarter of 2015 increased by 37.3% compared to the same prior-year period. Sales of industrial supplies accounted for 16.1% of the Company’s net sales for the third quarter of 2015 and reflected solid sales momentum from our acquisitions in the last 12 months, which contributed $81.2 million in incremental sales. Without the acquisitions, industrial sales declined 12.6% over the prior-year quarter. Approximately 25% of our organic industrial business is exposed to energy sector resellers which have been impacted by the decline in oil prices resulting in sales declines in our general industrial and energy channels. We expect this impact to continue throughout the year.

Office furniture sales in the third quarter of 2015 increased 2.7% compared to the third quarter of 2014. Office furniture accounted for 6.3% of the Company’s third quarter of 2015 consolidated net sales. Within this category, the loss of sales at Office Depot was mostly offset by growth in other large customers and e-tailers.

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

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

Operating Expenses. Operating expenses for the third quarter were $172.2 million or 12.4% of sales, including $13.5 million related to the third quarter charges. Adjusted operating expenses were $158.6 million or 11.4% of sales compared with $148.8 million or 10.5% of sales in the same period last year. The $9.8 million increase was driven by $11.5 million of incremental expenses from acquisitions, partially offset by benefits from our first quarter restructuring actions and expense control.

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

Income Taxes. Income tax expense was $20.0 million for the third quarter of 2015, compared with $23.6 million for the same period in 2014. The Company’s effective tax rate was 42.0% for the current-year quarter and 37.0% for the same period in 2014 driven by the capital loss on the sale of Azerty de Mexico which cannot be recognized at this time and carries a full valuation allowance.

Net Income. Net income for the third quarter of 2015 totaled $27.7 million or $0.74 per diluted share, including $10.0 million after-tax, or $0.26 per diluted share, of costs related to the third quarter charges. Adjusted net income was $37.7 million, or $1.00 per diluted share, compared with net income of $40.2 million or $1.03 per diluted share for the same three-month period in 2014.

Results of Operations— Nine Months Ended September 30, 201 5 Compared with the Nine Months Ended September 30, 2014

Net Sales. Net sales for the first nine months of 2015 were $4.07 billion. The following table summarizes net sales by product category for the nine-month periods ended September 30, 2015 and 2014 (in thousands):

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

(1)

Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications include changes between several product categories due to several specific products being reclassified to different categories. These changes did not impact the Condensed Consolidated Statements of Income.

Sales in the janitorial and breakroom supplies product category increased 3.0% in the first nine months of 2015 compared to the first nine months of 2014. This category accounted for 27.1% of the Company’s first nine months of 2015 consolidated net sales. Sales growth in this category was driven by being named the primary supplier for Office Depot’s janitorial business and growth in e-tail, partially offset by reduced demand in our independent dealer customers.

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

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

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

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

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

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

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

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

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

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

Cash Flows

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

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2015 totaled $183.7 million, compared with $93.7 million in the same nine-month period of 2014. The 96.1% improvement over the prior year demonstrates market factors and our commitment to effectively manage working capital.

Investing Activities

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

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2015 totaled $118.1 million, compared with $49.8 million in the prior-year period. Net cash used in financing activities during the first nine months of 2015 was impacted by $45.3 million in net repayments under debt arrangements, $55.7 million in share repurchases and $16.0 million in payments of cash dividends.

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

Liquidity and Capital Resources

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

Financing available from debt and the sale of accounts receivable as of September 30, 2015 , is summarized below (in millio ns):

Availability

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

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

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

	As of			As of
	September 30,			December 31,
	2015			2014
2013 Credit Agreement	$	318.5		$	363.0
2013 Note Purchase Agreement		150.0			150.0
Receivables Securitization Program		200.0			200.0
Mortgage & Capital Lease		0.1			0.9
Debt		668.6			713.9
Stockholders’ equity		832.6			843.7
Total capitalization	$	1,501.2		$	1,557.6

Debt-to-total capitalization ratio		44.5	%		45.8	%

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

Contractual Obligations

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

I TEM 3.

QUANTI TATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is subject to market risk associated principally with changes in interest rates and foreign currency exchange rates. There were no material changes to the Company’s exposures to market risk during the first nine months of 2015 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

I TEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

During the fiscal quarter ended September 30, 2015, 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

I TEM 1.

LEGAL PROCEEDINGS.

I TEM 1A.

RISK FACTORS.

For information regarding risk factors, see “Risk Factors” in Item 1A of Part I of the Company’s Form 10-K for the year ended December 31, 2014. There have been no material changes to the risk factors described in such Form 10-K.

I TEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF P ROCEEDS.

(a)

Not applicable.

(b)

Not applicable.

(c)

Common Stock Purchases.

During the nine-month periods ended September 30, 2015 and 2014, the Company repurchased 1,525,222 and 1,074,574 shares of common stock at an aggregate cost of $57.4 million and $43.0 million, respectively. On February 11, 2015, the Board of Directors authorized the Company to purchase an additional $100.0 million of common stock. The Company repurchased 1,737,850 shares for $64.5 million year-to-date through October 19, 2015. As of that date, the Company had approximately $77.9 million remaining of existing share repurchase authorization from the Board of Directors.

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

I TEM 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 the Company, dated as of June 1, 2015 (Exhibit 3.1 to the Company’s Form 10-Q for the quarter ended June 30, 2015, filed on July 23, 2015)

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

4.1		Note Purchase Agreement, dated as of November 25, 2013, among USI, USSC, 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		Parent Guaranty, dated as of November 25, 2013, by USI in favor of the holders of the promissory notes identified therein (Exhibit 4.5 to the 2013 Form 10-K)

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

10.1*		Executive Employment Agreement, effective as of July 22, 2015, by and among Essendant Inc., Essendant Co., and Essendant Management Services LLC and Robert B. Aiken, Jr. **

10.2		Letter Agreement dated June 4, 2015 among Essendant Inc., Essendant Co. and Robert B. Aiken, Jr. (Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on June 9, 2015)**
18.1*		Preferability Letter on Change in Accounting Principle

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

31.2*		Certification of Chief Financial Officer, dated as of October 21, 2015, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer and Chief Financial Officer, dated as of October 21, 2015, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*		The following financial information from Essendant Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2015, filed with the SEC on October 21, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statement of Income for the three-month and nine-month periods ended September 30, 2015 and 2014, (ii) the Condensed Consolidated Balance Sheet at September 30, 2015 and December 31, 2014, (iii) the Condensed Consolidated Statement of Cash Flows for the nine-month periods ended September 30, 2015 and 2014, and (iv) Notes to Condensed Consolidated Financial Statements.

*	- Filed herewith

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

SIGNATURES

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

			ESSENDANT INC.
			(Registrant)

Date: October 21, 2015			/s/ Todd A. Shelton
			Todd A. Shelton
			Senior Vice President and Chief Financial Officer

Exhibit 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “ Agreement ”) is made, entered into and effective as of July 22, 2015 (the “ Effective Date ”) by and among ESSENDANT INC., a Delaware corporation (hereinafter, together with its successors, referred to as “ Holding ”), ESSENDANT CO., an Illinois corporation (hereinafter, together with its successors, referred to as the “ Company ”, ESSENDANT MANAGEMENT SERVICES LLC, an Illinois limited liability company (hereinafter, together with its successors, referred to as “ EMS ”) (with Holding, the Company, EMS, and their respective subsidiaries and affiliates including the entity employing the Executive, and any successors thereto, hereinafter referred to as the “ Companies ”), and Robert B. Aiken, Jr. (hereinafter referred to as the “ Executive ”).

WHEREAS, the Companies and Executive are parties to an offer of employment in the form of a letter agreement dated July 22, 2015 (the “Offer of Employment”); and

WHEREAS, the Companies and Executive acknowledge and agree that it is in their mutual best interests to enter into an Executive Employment Agreement ; and

WHEREAS, Executive will be a key member of the management of the Companies and is expected to devote substantial skill and effort to the affairs of the Companies, and the Companies desire to recognize the significant personal contribution that Executive makes and is expected to continue to make to further the best interests of the Companies and their shareholders; and

WHEREAS, it is desirable and in the best interests of the Companies and its shareholders to obtain the benefits of Executive’s services and attention to the affairs of the Companies, and to provide inducement for Executive (1) to remain in the service of the Companies in the event of any proposed or anticipated Change of Control and (2) to remain in the service of the Companies in order to facilitate an orderly transition in the event of a Change of Control; and

WHEREAS, it is desirable and in the best interests of the Companies and their shareholders that Executive be in a position to make judgments and advise the Companies with respect to any proposed Change of Control without regard to the possibility that Executive’s employment may be terminated without compensation in the event of a Change of Control; and

WHEREAS, Executive will have access to confidential, proprietary and trade secret information of the Companies and their subsidiaries, and it is desirable and in the best interests of the Companies and their shareholders to protect confidential, proprietary and trade secret information of the Companies and their subsidiaries, to prevent unfair competition by former executives of the Companies following separation of their employment with the Companies and to secure cooperation from former executives with respect to matters related to their employment with the Companies; and

WHEREAS, it is desirable and in the best interests of the Companies and their shareholders to obtain commitments from Executive with respect to Executive’s service with the Companies, and to facilitate a smooth transition upon separation from service for former executives.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties agree as follows:

Section 1. Definitions .

#8893

(a) As used in this Agreement, the following terms h ave the respective meanings set forth below:

“Accrued Benefits” means (i) all salary earned or accrued through the date the Executive’s employment is terminated, (ii) reimbursement for any and all monies expended by Executive in connection with the Executive’s employment for reasonable and necessary out-of-pocket business expenses incurred by the Executive in performance of services for the Compan ies through the date the Executive’s employment is terminated, (iii) all accrued and unpaid annual incentive compensation awards for the year immediately prior to the year in which the Executive’s employment is terminated, and (iv) all other payments and benefits payable on or after termination of employment to which the Executive is entitled at the date of termination under the terms of any applicable compensation arrangement or benefit plan or program of the Companies. “Accrued Benefits” shall not include any entitlement to severance pay or severance benefits under any severance policy or plan generally applicable to the Companies’ salaried employees.

“Affiliate” shall have the meaning given such term in Rule 12b-2 of the Exchange Act.

“Board” shall mean, so long as Holding directly or indirectly owns all of the outstanding Voting Securities (as hereinafter defined in the definition of Change of Control) of the Companies, the board of directors of Holding. In all other cases, Board means the board of directors of the Company.

“Cause” shall mean (i) conviction of, or plea of nolo contendere to, a felony (excluding motor vehicle violations); (ii) theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Companies ; (iii) illegal use of drugs; (iv) material breach of this Agreement or any employment-related undertakings provided in a writing signed by the Executive prior to or concurrently with this Agreement; (v) gross negligence or willful misconduct in the performance of Executive’s duties; ( vi) breach of any fiduciary duty owed to the Companies, including, without limitation, engaging in competitive acts while employed by the Companies ; or ( vii) the Executive’s willful refusal to perform the assigned duties for which the Executive is qualified as directed by the Board; provided, that in the case of any event constituting Cause within clauses (iv) through (vii) which is curable by the Executive, the Executive has been given written notice by the Companies of such event said to constitute Cause, describing such event in reasonable detail, and has not cured such action within thirty (30) days of such written notice as reasonably determined by the board of directors of Holding. For purposes of this definition of Cause, action or inaction by the Executive shall not be considered “willful” unless done or omitted by the Executive (A) intentionally or not in good faith and (B) without reasonable belief that the Executive’s action or inaction was in the best interests of the Companies, and shall not include failure to act by reason of total or partial incapacity due to physical or mental illness.

“Change of Control” shall mean and include any of the following:

(a) Any “Person” (having the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” within the meaning of Section 13(d)(3)) has or acquires “Beneficial Ownership” (within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the combined voting power of Holding’s then outstanding voting securities entitled to vote generally in the election of directors (“ Voting Securities ”); provided, however, that the acquisition or holding of

Voting Securities by (i) Holding o f any of its S ubsidiaries, (ii) an employee benefit plan (or a trust forming a part thereof) maintained by Holding or any of its S ubsidiaries, or (iii) any Person in which the Executive has a substantial equity interest shall not constitute a Change of Control. Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person acquired Beneficial Ownership of more than the permitted amount of Voting Securities as a result of (A) the issuance of Voting Securities by Holding in exchange for assets (including equity interests) or funds with a fair value equal to the fair value of the Voting Securities so issued or (B) the acquisition of Voting Securities by Holding which, by reducing the number of Voting Securities outstanding, increases the proportional number of shares Beneficially Owned by such Person ; provided that if a Change of Control would occur (but for the operation of this sentence) as a result of the issuance of Voting Securities or the acquisition of Voting Securities by Holding , and after such issuance or acquisition , such Person becomes the Beneficial Owner of any additional Voting Securities which increases the percentage of the Voting Securities Beneficially Owned by such Person to more than 50% of the Voting Securities of Holding , then a Change of Control shall occur;

(b) At any time during a period of two consecutive years, the individuals who at the beginning of such period constituted the Board (the “ Incumbent Board ”) cease for any reason to constitute more than 50% of the Board; provided, however, that if the election, or nomination for election by Holding’s shareholders, of any new director was approved by a vote of more than 50% of the directors then comprising the Incumbent Board, such new director shall, for purposes of this subsection (b), be considered as though such person were a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of (i) either an actual “Election Consent” (as described in Rule 14a-11 promulgated under the Exchange Act) or other actual solicitation of proxies or consents by or on behalf of a Person other than the Incumbent Board (a “ Proxy Contest ”), or (ii) by reason of an agreement intended to avoid or settle any actual or threatened Election Contest or Proxy Contest;

(c) Consummation of a merger, consolidation or reorganization or approval by Holding’s shareholders of a liquidation or dissolution of Holding or the occurrence of a liquidation or dissolution of Holding (“ Business Combination ”), unless, following such Business Combination:

(i) the Persons with Beneficial Ownership of Holding, immediately before such Business Combination, have Beneficial Ownership of more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation (or in the election of a comparable governing body of any other type of entity) resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns Holding or all or substantially all of Holding’s assets either directly or through one or more subsidiaries) (the “ Surviving Company ”) in substantially the same proportions as their Beneficial Ownership of the Voting Securities immediately before such Business Combination,

(ii) the individuals who were members of the Incumbent Board immediately prior to the execution of the initial agreement providing for such Business Combination constitute more than 50% of the members of the board of directors (or comparable governing body of a noncorporate entity) of the Surviving Company; and

( iii ) no Person (other than Holding , any of its S ubsidiaries or any employee benefit plan (or any trust forming a part thereof) maintained by Holding , the Surviving Company or any Person who immediately prior to such Business Combination had Beneficial Ownership of 30% or more of the then Voting Securities) has Beneficial Ownership of 30% or more of the then combined voting power of the Surviving Company’s then outstanding voting securities; provided, that notwithstanding this clause ( iii ), a Change of Control shall not be deemed to occur solely because any Person acquired Beneficial Ownership of more than 30% of Voting Securities as a result of the issuance of Voting Securities by Holding in exchange for assets (including equity interests) or funds with a fair value equal to the fair value of the Voting Securities so issued; provided, however that a Business Combination with a Person in which the Executive has a substantial equity interest shall not constitute a Change of Control with respect to such Person .

(d) The closing of any assignment, sale, conveyance, transfer, lease or other disposition of all or substantially all of the assets of Holding to any Person (other than a Person in which the Executive has a substantial equity interest (in which case there shall not be a Change of Control with respect to such Person) and other than a Subsidiary of Holding or other entity, the Persons with Beneficial Ownership of which are the same Persons with Beneficial Ownership of Holding and such Beneficial Ownership is in substantially the same proportions), or the occurrence of the same.

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

“Good Reason” shall mean: (i) any material breach by the Companies of this Agreement without Executive’s written consent, (ii) without Executive’s written consent, any change in Executive’s title or position as Chief Executive Officer reporting directly to the Board of the Companies, or any change pursuant to which Executive is not the senior most officer of the Companies (other than any non-executive chairman), or (iii) without Executive’s written consent: (A) a material reduction in the Executive’s Base Salary, or (B) the relocation of the Executive’s principal place of employment more than fifty (50) miles from its location on the Effective Date. For purposes of this Agreement, a Change of Control, alone, does not constitute Good Reason. Furthermore, notwithstanding the above, the occurrence of any of the events described above will not constitute Good Reason unless the Executive gives the Companies written notice within thirty (30) days after the initial occurrence of any of such events that the Executive believes that such event constitutes Good Reason, and the Companies thereafter fail to cure any such event within sixty (60) days after receipt of such notice.

“Person” shall mean any natural person, firm, corporation, limited liability company, trust, partnership, limited or limited liability partnership, business association, joint venture or other entity and, for purposes of the definition of Change of Control herein, shall comprise any “person”, within the meaning of Sections 13(d) and 14(d) of the Exchange Act, including a “group” as therein defined.

“Subsidiary” shall mean, with respect to any Person, any other Person of which such first Person owns 20% or more of the economic interest in such Person or owns or has the power to vote, directly or indirectly, securities representing 20% or more of the votes ordinarily entitled to be cast for the election of directors or other governing Persons.

(b) The capitalized terms used in Section 5(j) have the respective meanings assigned to them in such Section and the following additional terms have the respective meanings assigned to them in the Sections hereof set forth opposite them:

“Annual Bonus” Section 4(b)

“Base Salary” Section 4( a)

“Bonus Plan” Section 4(b)

“Code” Section 2

“Confidential information or proprietary data” Section 6(a)(2)

“Customer” Section 6(d)(2)

“Disability” Section 5(c)

“Employment Period” Section 2

“Retirement” Section 5(f)

“Supervising Officer” Section 3(a)

“Supplier” Section 6(d)(2)

“Term” and “Termination Date” Section 2

Section 2. Term and Employment Period . Subject to Section 19 hereof, the term of this Agreement “ Term” shall commence on the Effective Date of this Agreement and shall continue until the effective date of termination of the Executive's employment hereunder pursuant to Section 5 of this Agreement. The period during which the Executive is employed by the Companies pursuant to this Agreement is referred to herein as the “ Employment Period.” The date on which termination of the Executive's employment hereunder shall become effective is referred to herein as the “ Termination Date.” For purposes of Section 5 of this Agreement only, the Termination Date shall mean the date on which a “separation from service” has occurred for purposes of Section 409A of the Internal Revenue Code and the regulations and guidance thereunder (the “ Code ”).

Section 3. Duties .

(a) During the Employment Period, the Executive (i) shall serve as President and Chief Executive Officer, of the Companies, (ii) shall report directly to the Board, (iii) shall, subject to and in accordance with the authority and direction of the Board, have such authority and perform in a diligent and competent manner such duties as may be assigned to the Executive from time to time by the Board and (iv) shall devote the Executive’s best efforts and such time, attention, knowledge and skill to the operation of the business and affairs of the Companies as shall be necessary to perform the Executive’s duties. During the Employment Period, the Executive’s place of performance for the Executive’s duties and responsibilities shall be at the Companies’ corporate headquarters office, unless another principal place of performance is agreed in writing among the parties and except for required travel by the Executive on the Companies’ business or as may be reasonably required by the Companies.

(b) Notwithstanding the foregoing, it is understood during the Employment Period, subject to any conflict of interest policies of the Companies, the Executive may (i) serve in any capacity with any civic, charitable, educational or professional organization provided that such service does not materially interfere with the Executive’s duties and responsibilities hereunder, (ii) make and manage personal investments of the Executive’s choice, and (iii) with the prior consent of the Board, which shall not be unreasonably withheld, serve on the board of directors of one (1) for profit business enterprise.

Section 4. Compensation . During the Employment Period, the Executive shall be compensated as follows:

(a) the Executive shall receive from the Companies, at such intervals and in accordance with the Companies’ payroll policies as may be in effect from time to time, an annual salary (pro rata for any partial year) equal to $800,000 (“ Base Salary ”). The Base Salary shall be reviewed by the Board from time to time and may, in the Board’s sole discretion, be increased

when deemed appropriate by the Board; if so increased, it shall not thereafter be reduced (other than an across-the-board reduction applied in the same percentage at the same time to all of the Compan ies’ senior executives at the senior executive grade level);

(b) the Executive shall be eligible to earn an annual incentive compensation award under the Companies’ management incentive or bonus plan, or a successor plan thereto, as shall be in effect from time to time (the “ Bonus Plan ”), subject to achievement of performance goals determined in accordance with the terms of the Bonus Plan (such annual incentive compensation award, the “ Annual Bonus ”), with such Annual Bonus to be payable in a cash lump sum at such time as bonuses are ordinarily paid to the Companies’ senior executives;

(c) the Executive shall be reimbursed, at such intervals and in accordance with the Companies’ policies as may be in effect from time to time, for any and all reasonable and necessary out-of-pocket business expenses incurred by the Executive during the Employment Period for the benefit of the Companies, subject to documentation in accordance with the Companies’ policies;

(d) the Executive shall be entitled to participate in all incentive, savings and retirement plans, equity-based compensation plans, practices, policies and programs applicable generally to other senior executives of the Companies and as determined by the Board from time to time;

(e) the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Compan ies to senior executives of the Companies (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, and accidental death and travel accident insurance plans and programs) to the extent applicable generally to other executives of the Companies at the same grade level;

(f) the Executive shall be entitled to not less than twenty -six (26) days of paid time off per calendar year (pro rata for any partial year); and

(g) the Executive shall be entitled to participate in the Compan ies’ other executive fringe benefits and perquisites generally applicable to the Companies’ senior executives at the same grade level in accordance with the terms and conditions of such arrangements as are in effect from time to time.

Section 5. Termination of Employment .

(a) All Accrued Benefits to which the Executive (or the Executive’s estate or beneficiary) is entitled shall be payable within thirty (30) days following the Termination Date, except as otherwise specifically provided herein or under the terms of any applicable policy, plan or program, in which case the payment terms of such policy, plan or program shall be determinative.

(b) Any termination by the Compan ies, or by the Executive, of the Employment Period shall be communicated by written notice of such termination to the Executive, if such notice is delivered by the Companies, and to the Companies, if such notice is delivered by the Executive, each in compliance with the requirements of Section 13 hereof. Except in the event of termination of the Employment Period by reason of Cause or the Executive’s death, the effective date of the termination of Executive’s employment shall be no earlier than thirty (30) days following the date on which notice of termination is delivered by one party to the other in compliance with the requirements of Section 13 hereof.

(c) If the Employment Period is terminated, other than on or within two (2) years following the date of a Change of Control, by the Executive for Good Reason such that the Executive’s separation from service occurs within two years following the initial existence of the condition giving rise to Good Reason, or by the Compan ies for any reason other than Cause or the Executive’s death or permanent disability, as defined in the Companies’ Board-approved disability plan or policy as in effect from time to time (“ Disability ”), then, as the Executive’s exclusive right and remedy in respect of such termination:

(i) the Executive shall be entitled to receive from the Compan ies the Executive’s Accrued Benefits in accordance with Section 5(a);

(ii) the Executive shall be entitled to an amount equal to two (2) times the Executive’s then existing Base Salary, to be paid in such intervals and at such times in accordance with the Companies’ payroll practices in effect from time to time over the twenty-four (24) month period following the Termination Date, but in no event shall such amount paid under this Section 5(c)(ii) exceed the lesser of (A) two (2) times the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the calendar year in which the Executive’s Termination Date occurs, or (B) two (2) times the sum of Executive’s annualized compensation based upon the annual rate of pay for services to the Companies for the calendar year prior to the calendar year in which the Termination Date occurs (adjusted for any increase during that year that was expected to continue indefinitely if the Executive had not separated from service), consistent with the parties’ intention that the payments under this Section 5(c)(ii) constitute a “separation pay plan due to involuntary separation from service” under Treas. Reg. § 1.409A-1(b)(9)(iii);

(iii) in the event that an amount equal to two (2) times the Executive’s then-existing Base Salary exceeds the limitation in Subsection 5(c)(ii) above, then the Executive shall be entitled to an additional lump sum payment equal to the difference between (x) two (2) times the Executive’s then-existing Base Salary and (y) the amount payable to Executive under Subsection 5(c)(ii), such lump sum payable to Executive on the first regular payroll date of the Companies to occur following the date that is six months after the Termination Date;

(iv) the Executive shall be entitled to a payment in an amount equal to two (2) times the actual Annual Bonus award which would otherwise be payable for the calendar year during which the Termination Date occurs, as if the Executive had been employed for all of such calendar year based on actual performance, to be paid at such time as the Annual Bonus award would otherwise be paid in accordance with the Companies’ policies;

(v) the Executive shall be entitled to a lump-sum payment in an amount equal to the pro-rata actual Annual Bonus award which would otherwise be payable for the calendar year during which the Termination Date occurs, with such pro-rata actual Annual Bonus award determined by multiplying the Annual Bonus award amount by a fraction, the numerator of which is the number of days in the calendar year of the Termination Date elapsed prior to the Termination Date and the denominator of which is three hundred and sixty-five (365); such lump sum payment to be made on the date that Annual Bonus payments are made to other participants in the plan;

(vi) the Executive shall continue to be covered, upon the same terms and conditions described in Section 4(e) hereof, by the same or equivalent medical and/or dental insurance plans, programs and/or arrangements as in effect for the Executive

immediately prior to the Termination Date, beginning on the Termination Date and continuing until the earlier of: (A) the twenty-four ( 24 ) month anniversary following the date of the Executive’s Termination Date, and (B) the date the Executive receives substantially equivalent coverage under the plans, programs and/or arrangements of a subsequent employer, provided that Executive timely pays the Executive’s portion of such coverage, and provided further that if the Compan ies determine that the coverage to be provided under this Section 5(c)(vi) would cause a self-insured plan maintained by the Compan ies to be in violation of the nondiscrimination requirements of Section 105(h) of the Code, then such coverage will be paid for by the Executive by means of the Compan ies reporting imputed income to Executive on a monthly basis for the fair market value of such coverage plus additional imputed amounts to pay any income tax at source on resulting wages subject to FICA or the income tax withholding provisions of federal or state tax law, including pyramiding wages and taxes (and the Compan ies shall be responsible for depositing all applicable withholding amounts in a timely manner with the appropriate tax authority);

(vii) the Executive shall receive a lump sum payment in an amount equal to the amount the Compan ies would otherwise expend for 24 months’ coverage for its share of the premiums for life and disability insurance plans or programs as in effect for Executive immediately prior to the Termination Date, payable to Executive within ninety (90) days following the Termination Date; and

(viii) for the period commencing on the Termination Date and ending not later than the last day of the second calendar year after the Termination Date, the Executive shall be entitled to receive executive level career transition assistance services provided by a career transition assistance firm selected by the Executive and paid for by the Compan ies in an amount not to exceed ten percent (10%) of the Executive’s then existing Base Salary. The Executive shall not be eligible to receive cash in lieu of executive level career transition assistance services.

(d) If during the Employment Period, a Change of Control occurs and the Employment Period is terminated on or within two (2) years following the date of such Change of Control by the Companies for any reason other than Cause or Executive’s death or Disability or by the Executive for Good Reason, and, in the case of Executive’s resignation for Good Reason, the Executive’s separation from service occurs within two years following the initial existence of the condition giving rise to Good Reason, then:

(i) the Executive shall be entitled to receive from the Compan ies the Executive’s Accrued Benefits in accordance with Section 5(a);

(ii) the Executive shall be entitled to a lump-sum payment in an amount equal to three (3) times the Executive’s then existing Base Salary, to be paid within ninety (90) days following the Termination Date, subject to the requirements of both Section 5(e) and Section 11;

(iii) the Executive shall be entitled to a lump-sum payment in an amount equal to three (3) times the Executive’s target incentive compensation award for the calendar year during which the Termination Date occurs, to be paid within ninety (90) days following the Termination Date;

(iv) the Executive shall be entitled to a lump-sum payment to be paid within ninety (90) days following the Termination Date in an amount equal to the pro-rata target

incentive compensation award for the calendar year during which the Termination Date occurs. Such pro-rata target incentive compensation award shall be determined by multiplying the target incentive compensation award amount by a fraction, the numerator of which is the number of days in the calendar year of the Termination Date elapsed prior to the Termination Date and the denominator of which is three hundred and sixty-five (365);

(v) the Executive shall continue to be covered, upon the same terms and conditions described in Section 4(e) hereof, by the same or equivalent medical and/or dental insurance plans, programs and/or arrangements as in effect for the Executive immediately prior to the Change of Control, beginning on the Termination Date and continuing until the earlier of: (A) the third anniversary following the date of the Executive’s Termination Date, and (B) the date the Executive receives substantially equivalent coverage under the plans, programs and/or arrangements of a subsequent employer, provided that Executive timely pays the Executive’s portion of such coverage, and provided further that if the Companies determine that the coverage to be provided under this Section 5(d)(v) would cause a self-insured plan maintained by the Companies to be in violation of the nondiscrimination requirements of Section 105(h) of the Code, then such coverage will be paid for by the Executive by means of the Companies reporting imputed income to Executive on a monthly basis for the fair market value of such coverage plus additional imputed amounts to pay any income tax at source on resulting wages subject to FICA or the income tax withholding provisions of federal or state tax law, including pyramiding wages and taxes (and the Companies shall be responsible for depositing all applicable withholding amounts in a timely manner with the appropriate tax authority);

(vi)the Executive shall receive a lump sum payment in an amount equal to the amount the Companies would otherwise expend for 36-months’ coverage for its share of the premiums for life and disability insurance plans or programs as in effect for Executive immediately prior to the Termination Date, payable to Executive within ninety (90) days following the Termination Date;

(vii) the Executive shall receive a lump sum cash payment, payable to Executive within ninety (90) days following the Termination Date, in an amount equal to the additional benefit value (on a present value, differential basis) that would be payable to Executive under the Compan ies’ defined benefit retirement plan if the Executive had three (3) additional years of credit for purposes of age, benefit service and vesting;

(viii) if the Executive’s outstanding equity-based incentive awards have not by then fully vested pursuant to the terms of the Companies’ applicable equity-based incentive plan(s) and applicable award agreement(s), then to the extent permitted in those plan(s) and as provided in the applicable award agreement(s), the Executive shall continue to vest in the Executive’s unvested equity-based incentive awards following the Termination Date;

(ix) for the period commencing on the Termination Date and ending not later than the last day of the second calendar year after the Termination Date, the Executive shall be entitled to receive executive level career transition assistance services provided by a career transition assistance firm selected by the Executive and paid for by the Companies in an amount not to exceed ten percent (10%) of the Executive’s then existing Base Salary. The Executive shall not be eligible to receive cash in lieu of executive level career transition assistance services; and

(x) the Executive shall be entitled to be reimbursed by the Compan ies for the Executive’s reasonable attorneys’ fees, costs and expenses incurred in conjunction with any dispute regarding Section 5(d) if Executive prevails in any material respect in such dispute, provided that (A) the applicable statutes of limitations shall not have expired for any claim arising from the dispute that could be raised in a court of law; (B) Executive shall submit to the Compan ies verification of legal expenses for reimbursement within 60 days from the date the expense was incurred; (C) the Compan ies shall reimburse Executive for eligible expenses promptly thereafter, but in any event not earlier than the first day of the seventh month following the Termination Date and not later than December 31 of the calendar year following the calendar year in which the expense was incurred; (D) the expenses eligible for reimbursement during any given calendar year shall not affect the expenses eligible for reimbursement in any other calendar year; and (E) the right to reimbursement hereunder may not be liquidated or exchanged for cash or any other benefit.

(e) Any amounts payable pursuant to Sections 5(c) and 5(d) above shall be considered severance payments and, except for the Executive’s vested benefits under the Companies’ employee benefit plans (other than severance plans), shall be in full and complete satisfaction of the obligations of the Companies to the Executive in connection with the termination of the Executive’s employment. Any cash payment due under Section 5(c)(iv), (v), and (vii) or under Section 5(d)(ii), (iii), (iv), (vi), and (vii) is intended to constitute a short-term deferral under Treas. Reg. § 1.409A-1(b)(4) and, accordingly, notwithstanding any longer time period specified in Section 5(c) or (d), such payment shall be made no later than two and one-half (2-1/2) months after the end of the calendar year in which the right to the payment is no longer subject to a substantial risk of forfeiture within the meaning of the regulations under Section 409A of the Code, with payment in all cases being conditioned on satisfaction of the requirements of Section 5(h).

(f) If the Employment Period is terminated as a result of the Executive’s death, Disability or Retirement (as defined below) , then the Executive shall be entitled to (i) the Executive’s Accrued Benefits in accordance with Section 5(a), (ii) any benefits that may be payable to the Executive under any applicable Board-approved disability, life insurance or retirement plan or policy in accordance with the terms of such plan or policy, and (iii) a lump sum payment in an amount equal to:

(A) in the event the Employment Period is terminated as a result of Executive’s death or Disability, an amount equal to the pro-rata target Annual Bonus award for the calendar year during which the Termination Date occurs by reason of the Executive’s death or Disability . Such lump sum payment shall be determined by multiplying the target Annual Bonus award amount by a fraction, the numerator of which is the number of days in the calendar year of the Termination Date elapsed prior to the Termination Date and the denominator of which is three hundred and sixty-five (365); or

(B) in the event the Employment Period is terminated as a result of Executive’s Retirement, an amount equal to the pro-rata actual Annual Bonus award for the calendar year during which the Termination Date occurs by reason of the Executive’s Retirement . Such lump sum payment shall be determined by multiplying the actual Annual Bonus award amount by a fraction, the numerator of which is the number of days in the calendar year of the Termination Date elapsed prior to the Termination Date and the denominator of which is three hundred and sixty-five (365).

In the event the Employment Period is terminated as a result of Executive’s death, such lump sum payment shall be made within 30 days following the Termination Date; in the event the

Employment Period is terminated as a result of Executive’s Disability, such lump sum payment shall be made on the first regular payroll date of the Compan ies to occur following the date that is six months after the Termination Date; and in the event the Employment Period is terminated as a result of Executive’s Retirement, such lump sum payment shall be made on the date that Annual Bonus payments are made to other participants in the plan . As used in this Agreement, “ Retirement ” shall mean the Executive’s separation from service (as defined in the regulations promulgated under Section 409A of the Code ) occurring after the earlier of (i) the Executive reaching age sixty-five ( 65 ) or (ii) the Executive reaching age fifty-five ( 55 ) and having completed at least ten ( 10 ) years of s ervice with the Compan ies .

(g) Notwithstanding anything else contained herein, if the Executive terminates his employment for any reason other tha n Disability or Retirement and without Good Reason, or the Companies terminate the Executive’s employment for Cause, all of the Executive’s rights to payment from the Companies (including pursuant to any plan or policy of the Companies) shall terminate immediately, except the right to payment for Accrued Benefits in respect of periods prior to such termination.

(h) Notwithstanding anything to the contrary contained in this Section 5, the Executive shall be required to execute the Companies’ then current standard release agreement as a condition to receiving any of the payments and benefits provided for in Sections 5(c) and (d), excluding the Accrued Benefits in accordance with Section 5(a), and no payments and benefits provided for in Sections 5(c) and (d) other than the Accrued Benefits in accordance with Section 5(a) shall be payable to Executive unless all applicable consideration and rescission periods for the release agreement have expired, Executive has not rescinded the release agreement and Executive is in compliance with each of the terms and conditions of such release agreement and this Agreement as of the date of such payments and benefits. With respect to any amount payable under Section 5(c)(iii), if the requirements of this paragraph are not met prior to the date on which payment is to be made under Section 5(c)(iii), the Executive shall forfeit the right to payment under Section 5(c)(iii). It is acknowledged and agreed that the then current standard release agreement shall not diminish or terminate the Executive’s rights under this Agreement or the Indemnification Agreement (identified in Section 16 below).

(i) In the event of a termination of the Executive’s employment entitling the Executive to benefits under Section 5(c) above, subject to the Executive’s affirmative obligations pursuant to Section 6, the Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Companies under this Agreement.

(j) Notwithstanding any provision to the contrary contained in this Agreement, if the cash payments due and the other benefits to which Executive shall become entitled under Section 5, either alone or together with other payments in the nature of compensation to Executive which are contingent on a change in the ownership or effective control of the Companies or in the ownership of a substantial portion of the assets of the Companies or otherwise, would constitute a “parachute payment” (as defined in Section 280G of the Code or any successor provision thereto), such payments or benefits shall be reduced (but not below zero) to the largest aggregate amount as will result in no portion thereof being subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or being non-deductible to the Companies for Federal Income Tax purposes pursuant to Section 280G of the Code (or any successor provision thereto), provided, however, that the foregoing reduction will be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes).

Executive agrees to take such action as Employer reasonably requests to mitigate or challenge the application of such tax, provided that Employer shall supply such counsel and expert advice, including legal counsel and accounting advice, as may reasonably be required, and shall be responsible for the payment of such experts’ fees. If requested by Executive or the Compan ies , the determination of whether any reduction in payments or benefits to be provided under this Section 5 or otherwise is required pursuant to this Section 5(j) will be made by a national accounting firm selected and reimbursed by the Companies from among the ten (10) largest accounting firms in the United States as determined by gross revenues, not then-engaged as the Compan ies’ independent public auditor (the “Accounting Firm” ), subject to Executive’s consent (not to be unreasonably withheld) and the determination of such independent accounting firm will be final and binding on all parties. In making its determination, the independent accountant will allocate a reasonable portion of such payments and benefits to the value of any personal services rendered following the Change in Control and the value of any non-competition agreement or similar agreements to the extent that such items reduce the amount of the parachute payment. In the event that any payment or benefit intended to be provided under this Section 5 or otherwise is required to be reduced pursuant to this Section 5(j), the Companies shall make such reduction first by reducing amounts payable under Section 5(d)(i) and thereafter by reducing amounts payable under the following Sections of this Agreement in the following order, as necessary to achieve the reduction: 5(d)(iii), 5(d)(iv), 5(d)(vi), 5(d)(vii) , and 5(d)(ii ) . Amounts payable as reimbursements under Sections 5(d)(v) and 5(d)(x), if any, shall not be subject to reduction. No modification of, or successor provision to, Section 280G or Section 4999 subsequent to the date of this Agreement shall, however, reduce the benefits to which the Executive would be entitled under this Agreement in the absence of this Section 5(j) to a greater extent than they would have been reduced if Section 280G and Section 4999 had not been modified or superseded subsequent to the date of this Agreement, notwithstanding anything to the contrary provided in the first sentence of this Section 5(j).

Section 6. Further Obligations of the Executive .

(a) (1) During the Executive’s employment by the Companies, whether before or after the Employment Period, and after the termination of Executive’s employment by the Companies, the Executive shall not, directly or indirectly, disclose, disseminate, make available or use any confidential information or proprietary data of the Companies or any of their Subsidiaries, except as reasonably necessary or appropriate for the Executive to perform the Executive’s duties for the Companies, or as authorized in writing by the Board or as required by any court or administrative agency (and then only after prompt notice to the Companies to permit the Companies to seek a protective order).

(2) For purposes of this Agreement, “ confidential information or proprietary data ” means information and data prepared, compiled, or acquired by or for the Executive during or in connection with the Executive’s employment by the Companies (including, without limitation, information belonging to or provided in confidence by any Customer, Supplier, trading partner or other Person to which the Executive had access by reason of Executive’s employment with the Companies) which is not generally known to the public or which could be harmful to the Companies or their Subsidiaries if disclosed to Persons outside of the Companies. Such confidential information or proprietary data may exist in any form, tangible or intangible, or media (including any information technology-related or electronic media) and includes, but is not limited to, the following information of or relating to the Companies or any of their Subsidiaries, Customers or Suppliers:

(i) Business, financial and strategic information, such as sales and earnings information and trends, material, overhead and other costs, profit margins, accounting

information, banking and financing information, pricing policies, capital expenditure/investment plans and budgets, forecasts, strategies, plans and prospects.

(ii) Organizational and operational information, such as personnel and salary data, information concerning the utilization or capabilities of personnel, facilities or equipment, logistics management techniques, methodologies and systems, methods of operation data and facilities plans.

(iii) Advertising, marketing and sales information, such as marketing and advertising data, plans, programs, techniques, strategies, results and budgets, pricing and volume strategies, catalog, licensing or other agreements or arrangements, and market research and forecasts and marketing and sales training and development courses, aids, techniques, instruction and materials.

(iv) Product and merchandising information, such as information concerning offered or proposed products or services and the sourcing of the same, product or services specifications, data, drawings, designs, performance characteristics, features, capabilities and plans and development and delivery schedules.

(v) Information about existing or prospective Customers or Suppliers, such as Customer and Supplier lists and contact information, Customer preference data, purchasing habits, authority levels and business methodologies, sales history, pricing and rebate levels, credit information and contracts.

(vi) Technical information, such as information regarding plant and equipment organization, performance and design, information technology and logistics systems and related designs, integration, capabilities, performance and plans, computer hardware and software, research and development objectives, budgets and results, intellectual property applications, and other design and performance data.

(b) All records, files, documents and materials, in whatever form and media, relating to the Companies’ or any of their Subsidiaries’ business (including, but not limited to, those containing or reflecting any confidential information or proprietary data) which the Executive prepares, uses, or comes into contact with, including the originals and all copies thereof and extracts and derivatives therefrom, shall be and remain the sole property of the Companies or their Subsidiaries. Upon termination of the Executive’s employment for any reason, whether during or after the Employment Period, the Executive shall immediately return all such records, files, documents, materials and other property of the Companies and their Subsidiaries in the Executive’s possession, custody or control, in good condition, to the Companies.

(c) The Companies maintain, and Executive acknowledges and agrees, the Companies have and will entrust Executive with proprietary information, strategies, knowledge, customer relationships and know-how which would be detrimental to the Companies’ interest in protecting relationships with Customers and/or Suppliers if Executive were to provide services or otherwise participate in the operation of a competitor of the Companies. Therefore, during (i) the Executive’s employment by the Companies, whether during or after the Employment Period, and (ii) the twenty-four (24) month period following the end of Executive’s employment with the Companies, the Executive shall not in any capacity (whether as an owner, employee, consultant or otherwise) at any time perform, manage, supervise, or be responsible or accountable for anyone else who is performing services -- which are the same as, substantially similar or related to the services the Executive is providing, or during the last two years of the Executive’s employment by the Companies has provided, for the Companies or their Subsidiaries -- for, or on behalf of, any

other Person who or which is (1) a wholesaler of office products, including traditional office products, computer consumable products, office furniture, janitorial and/or sanitation products, food service paper/non-food products, audio/visual and business machines or such other products whether or not related to the foregoing provided by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after the Employment Period, (2) a provider of services the same as or substantially similar to those provided by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after the Employment Period, or (3) engaged in a line of business other than described in (1) or (2) hereinabove which is the same or substantially similar to the lines of business engaged in by the Companies or their Subsidiaries, or to any line of business which to the Executive’s knowledge is under active consideration or planning by the Companies and their Subsidiaries, during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after the Employment Period.

(d) (1) During (i) the Executive’s employment by the Companies, whether during or after the Employment Period, and (ii) the twenty-four (24 ) month period following the end of the Executive’s employment with the Companies, the Executive shall not at any time, directly or indirectly, solicit any Customer for or on behalf of any Person other than the Companies or any of their Subsidiaries with respect to the purchase of (A) office products, including traditional office products, computer consumable products, office furniture, janitorial and/or sanitation products, food service paper/non-food products, audio/visual and business machines, or such other products whether or not related to the foregoing provided by the Companies or their Subsidiaries to such Customer during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after the Employment Period, (B) services the same as or substantially similar to those provided by the Companies or their Subsidiaries to such Customer during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after the Employment Period or (C) products or services from a line of business other than as described in (A) or (B) herein which are the same or substantially similar to the products and services provided to such Customer from a line of business engaged in by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after the Employment Period. Without limiting the foregoing, (i) during the Executive’s employment by the Companies, whether during or after the Employment Period, and (ii) insofar as the Executive may be employed by, or acting for or on behalf of, a Supplier at any time within the twenty-four (24) month period following the end of the Executive’s employment with the Companies, the Executive shall not at any time, directly or indirectly, solicit any Customer to switch the purchase of the products or services described hereinabove from the Companies or their Subsidiaries to Supplier.

(2) For purposes of this Agreement, a “ Customer ” is any Person who or which has ordered or purchased by or from the Companies or any of their Subsidiaries (A) office products, including traditional office products, computer consumable products, office furniture, janitorial and/or sanitation products, food service paper/non-food products, audio/visual and business machines or such other products whether or not related to the foregoing, (B) services provided by or from the Companies or any of their Subsidiaries or (C) products or services from a line of business other than as described in (A) or (B) herein which are the same or substantially similar to the products and services from a line of business engaged in by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after the Employment Period. For purposes of this Agreement, a “ Supplier ” is any Person who or which has furnished to the Companies or their Subsidiaries for resale (A) office products, including traditional office products, computer consumable products, office furniture, janitorial and/or sanitation products, food service paper/non-food products,

audio/visual and business machines or such other products whether or nor related to the foregoing (B) services provided by or from the Companies or any of their Subsidiaries or (C) products or services from a line of business other than as described in (A) or (B) herein which are the same or substantially similar to the products and services from a line of business engaged in by the Companies or their Subsidiaries during the last twelve (12) months of the Executive’s employment with the Companies, whether during or after the Employment Period.

(e) During the Executive’s employment by the Companies, whether during or after the Employment Period, and during the twenty-four (24) month period following the end of the Executive’s employment with the Companies, the Executive shall not at any time, directly or indirectly, induce or solicit any employee of the Companies or any of their Subsidiaries for the purpose of causing such employee to terminate his or her employment with the Companies or such Subsidiary.

(f) The Executive shall not, directly or indirectly, make or cause to be made (and shall prohibit the officers, directors, employees, agents and representatives of any Person controlled by Executive not to make or cause to be made) any disparaging, derogatory, misleading or false statement, whether orally or in writing, to any Person, including members of the investment community, press, and customers, competitors and advisors to the Companies, about the Companies, their respective parents, Subsidiaries or Affiliates, their respective officers or members of their boards of directors, or the business strategy or plans, policies, practices or operations of the Companies, or of their respective parents, Subsidiaries or Affiliates.

(g) If any court determines that any portion of this Section 6 is invalid or unenforceable, the remainder of this Section 6 shall not thereby be affected and shall be given full effect without regard to the invalid provision. If any court construes any of the provisions of Section 6(c), 6(d), 6(e) or 6(f) above, or any part thereof, to be unreasonable because of the duration or scope of such provision, such court shall have the power to reduce the duration or scope of such provision and to enforce such provision as so reduced.

(h) During the Executive’s employment with the Companies, whether during or after the Employment Period, and during the twenty-four (24) month period following the end of Executive’s employment with the Companies, the Executive agrees that, prior to accepting employment with a Customer or Supplier of the Companies, the Executive will give notice to the Chief Executive Officer of the Companies. The Companies reserve the right to make such Customer or Supplier aware of the Executive’s obligations under Section 6 of this Agreement.

(i) During and following Executive’s Employment Period, the Executive shall furnish a copy of this Section 6 in its entirety to any prospective employer prior to accepting employment with such prospective employer.

(j) The Executive hereby acknowledges and agrees that damages will not be an adequate remedy for the Executive’s breach of any provision of this Section 6, and further agrees that the Companies shall be entitled to obtain appropriate injunctive and/or other equitable relief for any such breach, without the posting of any bond or other security, in addition to all other legal remedies to which the Companies may be entitled.

Section 7. Successors . The Companies may assign their rights under this Agreement to any successor to all or substantially all the assets of the Companies, by merger or otherwise, and may assign or encumber this Agreement and its rights hereunder as security for indebtedness of the Companies. Any such assignment by the Companies shall remain subject to the Executive’s rights under Section 5 hereof. The rights of the Executive under this Agreement may not be assigned or encumbered by the Executive,

voluntarily or involuntarily, during the Executive’s lifetime, and any such purported assignment shall be void ab initio . Notwithstanding the foregoing, all rights of the Executive under this Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, estates, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive hereunder shall be paid, in the event of the Executive’s death, to the Executive’s estate, heirs or representatives.

Section 8. Third Parties . Except for the rights granted to the Companies and their Subsidiaries pursuant hereto (including, without limitation, pursuant to Section 6 hereof) and except as expressly set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give any person other than the parties hereto and their successors and permitted assigns any rights or remedies under or by reason of this Agreement.

Section 9. Enforcement . The provisions of this Agreement shall be regarded as divisible and, if any of said provisions or any part or application thereof is declared invalid or unenforceable by a court of competent jurisdiction, the same shall not affect the other provisions hereof, other parts or applications thereof or the whole of this Agreement, but such provision shall be deemed modified to the extent necessary to render such provision enforceable, and the rights and obligations of the parties shall be construed and enforced accordingly, preserving to the fullest permissible extent the intent and agreements of the parties herein set forth.

Section 10. Amendment . Except as otherwise provided in this Section 10, this Agreement may not be amended or modified at any time except by a written instrument approved by the Board, and executed by the Companies and the Executive; provided , however , that any attempted amendment or modification without such approval and execution shall be null and void ab initio and of no effect. Notwithstanding the foregoing, effective upon 30 days’ notice to Executive and without further consideration from the Companies, this Agreement may be amended by the Companies in their sole discretion to the limited extent they deem necessary and appropriate to conform the terms of this Agreement to the requirements of any applicable laws, rules and regulations enacted or promulgated after the Effective Date of this Agreement. Any such amendments shall preserve the value of any payments or benefits payable to Executive under this Agreement to the extent practicable without defeating the purpose of the amendment, as determined in the sole discretion of the Companies.

Section 11. Payment; Taxes and Withholding . The Companies shall be responsible as employer for payment of all cash compensation and severance payments provided herein, and the Company shall cause the Companies to make such payments. The Executive shall not be entitled to receive any additional compensation from the Companies for any services the Executive provides to the Companies. The Companies shall be entitled to withhold from any amounts to be paid to the Executive hereunder any federal, state, local, or foreign withholding or other taxes or charges which it is from time to time required to withhold. The Companies shall be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise. Executive shall be solely responsible for the payment of all taxes due and owing with respect to wages, benefits, and other compensation provided to the Executive hereunder. This Agreement is intended to satisfy, or be exempt from, the requirements of Section 409A(a)(2), (3) and (4) of the Code, including current and future guidance and regulations interpreting such provisions, and should be interpreted accordingly. Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code would otherwise be payable under this Agreement by reason of Executive’s “separation from service” (as defined under Treas. Reg. Section 1.409A-1(h)) during a period in which Executive is a “specified employee” (as defined in Code Section 409A(2)(B)(i)), then: (i) the amount of such non-exempt deferred compensation that would otherwise be payable during the six-month period immediately following Executive’s separation from service will be accumulated through and paid or provided on the first day of the seventh month following Executive’s separation from service (or, if Executive dies during such

period, within 30 days after Executive's death) (in either case, the “Required Delay Period” ); and (ii) the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period. If Executive is entitled to be paid or reimbursed for any taxable expenses under this Agreement, including without limitation under Sections 5(c)(vi) and 5(d)(v), and such payments or reimbursements are includible in Executive’s federal taxable income, the amount of such expenses reimbursable in any one calendar year shall not affect the amount reimbursable in any other calendar year, and the reimbursement of an eligible expense must be made no later than December 31 of the year after the year in which the expense was incurred. No right of Executive to reimbursement of expenses under this Agreement, including without limitation under Sections 5(c)(v i ) and 5(d)(v), shall be subject to liquidation or exchange for another benefit.

Section 12. Governing Law . This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to principles of conflicts of law of Illinois or any other jurisdiction.

Section 13. Notice . Notices given pursuant to this Agreement shall be in writing and shall be deemed given when received and, if mailed, shall be mailed by United States registered or certified mail, return receipt requested, addressee only, postage prepaid:

If to the Companies :

Essendant Inc.

Essendant Co.

Essendant Management Services LLC

One Parkway North Blvd.

Suite 100

Deerfield, Illinois 60015-2559

Attention: General Counsel

If to the Executive :

Robert B. Aiden, Jr.

714 Washington Ave.

Wilmette, IL 60091

or to such other address as the party to be notified shall have given to the other in accordance with the notice provisions set forth in this Section 13.

Section 14. No Waiver . No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at any time.

Section 15. Headings . The headings contained herein are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.

Section 16. Indemnification . The provisions set forth in the Indemnification Agreement appended hereto as Attachment A are hereby incorporated into this Agreement and made a part hereof.

Section 17. Execution in Counterparts . This Agreement, including the Indemnification Agreement, may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

Section 18. Arbitration . Any dispute, controversy or question arising under, out of, or relating to this Agreement (or the breach thereof), or, the Executive’s employment with the Companies or termination thereof, shall be referred for arbitration in Chicago, Illinois to a neutral arbitrator selected by the Executive and the Companies (or if the parties are unable to agree on selection of such an arbitrator, one selected by the American Arbitration Association pursuant to its rules referred to below) and this shall be the exclusive and sole means for resolving such dispute. Such arbitration shall be conducted in accordance with the National Rules for Resolution of Employment Disputes of the American Arbitration Association. Except as provided in Section 5(d)(x) above, the arbitrator shall have the discretion to award reasonable attorneys’ fees, costs and expenses to the prevailing party. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Nothing in this Section 18 shall be construed so as to deny the Companies the right and power to seek and obtain injunctive relief in a court of equity for any breach or threatened breach by the Executive of any of the Executive’s covenants in Section 6 hereof. Moreover, this Section 18 and Section 12 hereof shall not be applicable to any dispute, controversy or question arising under, out of, or relating to the Indemnification Agreement.

Section 19. Survival . Notwithstanding the stated Term of this Agreement, the provisions of this Agreement necessary to carry out the intention of the parties as expressed herein, including without limitation those in Sections 5, 6, 7, 16 and 18, shall survive the termination or expiration of this Agreement.

Section 20. Construction . The parties acknowledge that this Agreement is the result of arm’s-length negotiations between sophisticated parties each afforded representation by legal counsel. Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of same, and any rule of construction that a document shall be construed against the drafting party shall not be applicable to this Agreement.

Section 21. Free to Contract . The Executive represents and warrants to the Companies that the Executive is able freely to accept employment by the Companies as described in this Agreement and that there are no existing agreements, arrangements or understandings, written or oral, that would prevent the Executive from entering into this Agreement, would prevent or restrict the Executive in any way from rendering services to the Companies as provided herein during the Employment Period or would be breached by the future performance by the Executive of the Executive’s duties and responsibilities hereunder.

Section 22. Entire Agreement . This Agreement, including the Indemnification Agreement and any other written undertakings by the Executive referred to herein, supersedes all other agreements, arrangements or understandings (whether written or oral) between the Companies and the Executive with respect to the subject matter of this Agreement, including without limitation any prior agreement and the Executive’s employment relationship with the Companies and any of their Subsidiaries, and this Agreement contains the sole and entire agreement among the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement does not supersede the terms of the Offer of Employment dated July 22, 2015.

Section 23. Recovery of Payments . The Companies may recover any cash or equity awarded to Executive under this Agreement or any plan or program of the Companies, or proceeds from the sale of such equity, to the extent required by the Company’s Clawback Policy or any rule of the Securities and Exchange Commission or any listing standard of the Nasdaq Stock Market, including any rule or listing standard requiring recovery of incentive compensation in connection with an accounting restatement due

to the Compan ies’ material noncompliance with any financial reporting requirement under the securities laws, which recovery shall be subject to the terms of any policy of the Compan ies implementing such rule or listing standard.

IN WITNESS WHEREOF, the parties have executed this Agreement in one or more counterparts, each of which shall be deemed one and the same instrument, as of the day and year first written above.

EXECUTED ON : ESSENDANT INC.

July 22, 2015 By : /s/ Charles K. Crovitz
Name: Charles K. Crovitz
Title: Chairman of the Board of Directors

EXECUTED ON: ESSENDANT CO.

July 22, 2015 By: /s/ Eric A. Blanchard
Name: Eric A. Blanchard
Title: Senior Vice President, General Counsel and Secretary

EXECUTED ON: ESSENDANT MANAGEMENT SERVICES LLC

July 22, 2015 By: /s/ Eric A. Blanchard
Name: Eric A. Blanchard
Title: Senior Vice President, General Counsel and Secretary

EXECUTED ON: EXECUTIVE

July 22, 2015 /s/ Robert B. Aiken, Jr.

Name: Robert B. Aiken, Jr.

Title: President and Chief Executive Officer

#8893

Exhibit 18.1

October 21, 2015

Board of Directors

Essendant Inc.

One Parkway North Boulevard, Suite 100

Deerfield, Illinois 60015-2559

Ladies and Gentlemen:

Note 2 of the Notes to the Condensed Consolidated Financial Statements of Essendant Inc. (the “Company”) included in its Form 10-Q for the period ended September 30, 2015 describes a change in the method of accounting regarding the inventory valuation method of certain domestic inventories of the Company from the first-in first-out (FIFO) method to the last-in first-out (LIFO) method. There are no authoritative criteria for determining a ‘preferable’ inventory valuation method based on the particular circumstances; however, we conclude that such a change is to an acceptable alternative which, based on your business judgment to make this change and for the stated reasons, is preferable in your circumstances. We have not conducted an audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) of any financial statements of the Company as of any date or for any period subsequent to December 31, 2014, and therefore we do not express any opinion on any financial statements of Essendant Inc. subsequent to that date.

Very truly yours,

/s/ Ernst & Young LLP

Ernest & Young

Chicago, Illinois

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

AS ADOPTED PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Robert B. Aiken, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Essendant Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 21, 2015		/s/ Robert B. Aiken
		Robert B. Aiken
		President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

AS ADOPTED PURSUANT TO

SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002

I, Todd A. Shelton, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Essendant Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 21, 2015		/s/ Todd A. Shelton
		Todd A. Shelton
		Senior Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Essendant Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Robert B. Aiken, President and Chief Executive Officer of the Company, and Todd A. Shelton, Senior Vice President and Chief Financial Officer of the Company, each hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Robert B. Aiken

Robert B. Aiken

President and Chief Executive Officer

October 21, 2015

/s/ Todd A. Shelton

Todd A. Shelton

Senior Vice President and Chief Financial Officer

October 21, 2015