Executive Offices

One Parkway North Blvd.

Suite 100

Deerfield, IL 60015-2559

For Further Information Contact:

investorrelations@essendant.com

(847) 627-2900

•

Revenue declined 6.9% to $1.3 billion, compared to $1.4 billion in the prior year quarter

•

GAAP diluted earnings per share in the quarter of $0.14 decreased compared to $0.35 in the prior year quarter

•

Adjusted diluted earnings per share⁽¹⁾ of $0.28 in the quarter increased sequentially from the first quarter of 2017, but decreased compared to $0.55 in the prior year quarter

•

Free cash flow⁽¹⁾ was $67.4 million in the quarter and $112.1 million in the first six months of 2017

•

Net sales decreased 6.9% in comparison to the prior year quarter, driven principally by reduced sales in technology, JanSan and traditional office products categories, partly offset by growth in cut-sheet paper and industrial products categories. Net sales by product category were:

•

JanSan Products:  revenues of $339.4 million, a decrease of $(32.0) million or 8.6%, primarily driven by declines in the national retail channel.

•

Technology Products:  revenues of $300.2 million, a decrease of $(42.6) million or 12.4%, as a result of reduced supplier promotions and declines in the national retail channel and the independent dealer channels.

(1)

This is non-GAAP information. See the Reconciliation of Non-GAAP Financial Measures section of this document for more information.

•

Traditional Office Products: revenues of $181.3 million, a decrease of $(21.2) million or 10.5%, due to sales declines in the independent dealer channel and the national retail channel.

•

Industrial Products:  revenues of $145.6 million, an increase of $2.4 million or 1.7%, due to growth initiatives and energy market recovery.

•

Cut-sheet Paper Products:  revenues of $106.3 million, an increase of $4.8 million or 4.7%, primarily driven by independent dealer channel sales increases.

•

Automotive Products:  revenues of $82.1 million, an increase of $1.6 million or 2.0%, driven by growth initiatives.

•

Office Furniture:  revenues of $67.9 million, a decrease of $(6.7) million or 9.0%, primarily driven by sales declines in the independent dealer channel.

•

Gross profit was $177.6 million, a decline of $(18.3) million versus the prior year quarter. The decline was the result of lower sales volumes, $(12.3) million with the remainder of the decline primarily driven by lower supplier allowances. Sales volume and supplier allowance declines more than offset the benefits of merchandising and pricing actions related to our transformation initiatives.  

•

Operating expenses were $161.7 million, a decrease from $169.4 million in the prior year quarter resulting from prior year pension settlement expense of $11.7 million, creating a favorable comparison, partially offset by current year quarter transformational expenses of $(5.4) million, and litigation accruals of $(3.0) million, reflecting an agreement to resolve a litigation matter. Adjusted operating expenses were $153.3 million, a decrease of $4.4 million, which was primarily driven by overall cost containment actions including decreased variable labor expenses, partially offset by a reset of management incentives.

•

Income tax expense was $4.5 million in the second quarter of 2017, a decline from $7.8 million in the prior year quarter due to lower pretax income, partially offset by the impact of adopting new accounting guidance related to share-based compensation.

•

GAAP diluted earnings per share was $0.14 compared to $0.35 in the quarter last year. Adjusted diluted earnings per share⁽¹⁾ were $0.28 compared to $0.55 in the quarter last year.

•

Free cash flow totaled $67.4 million in the quarter, reflecting continued working capital management and the timing of inventory receipts. Utilization of free cash flow from lower inventories drove a reduction in long-term debt of $60.5 million during the quarter.

•

In light of the first half sales results, we anticipate full year 2017 sales to decline 6% to 9% from 2016

•

Similar to our experience in the first half of 2017, we expect the range of 2017 sales decline to affect our second half adjusted diluted earnings per share⁽¹⁾.  

•

Based on strong cash flow generation in the first half of 2017, free cash flow⁽¹⁾ generation is expected to be in excess of $90 million for the full year 2017

For the Three Months Ended

For the Six Months Ended

June 30,

June 30,

2017

2016

2017

2016

Net sales

$

1,260,656

$

1,354,523

$

2,530,038

$

2,706,819

Cost of goods sold

1,083,092

1,158,700

2,166,807

2,310,914

Gross profit

177,564

195,823

363,231

395,905

Operating expenses:

Warehousing, marketing and administrative expenses

161,695

157,625

334,717

325,303

Impairment of goodwill

-

-

198,828

-

Defined benefit plan settlement loss

-

11,744

-

11,744

Operating income (loss)

15,869

26,454

(170,314

)

58,858

Interest expense, net

6,299

5,677

13,038

11,574

Income (loss) before income taxes

9,570

20,777

(183,352

)

47,284

Income tax expense

4,474

7,844

146

17,821

Net income (loss)

$

5,096

$

12,933

$

(183,498

)

$

29,463

Net income (loss) per share - basic:

$

0.14

$

0.35

$

(5.01

)

$

0.81

     Average number of common shares outstanding - basic

36,673

36,512

36,659

36,552

Net income (loss) per share - diluted:

$

0.14

$

0.35

$

(5.01

)

$

0.80

     Average number of common shares outstanding - diluted

36,873

36,910

36,659

36,897

Dividends declared per share

$

0.14

$

0.14

$

0.28

$

0.28

(Unaudited)

(Audited)

As of  June 30,

As of  December 31,

2017

2016

ASSETS

Current assets:

Cash and cash equivalents

$

23,889

$

21,329

Accounts receivable, less allowance for doubtful accounts of $16,751 in 2017 and $18,196 in 2016

663,926

678,184

Inventories

800,323

876,837

Other current assets

36,984

32,100

Total current assets

1,525,122

1,608,450

Property, plant and equipment, net

127,104

128,251

Intangible assets, net

78,149

83,690

Goodwill

99,479

297,906

Other long-term assets

45,971

45,209

Total assets

$

1,875,825

$

2,163,506

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

508,639

$

484,602

Accrued liabilities

188,940

197,804

Current maturities of long-term debt

6,089

28

Total current liabilities

703,668

682,434

Deferred income taxes

1,307

6,378

Long-term debt

504,932

608,941

Other long-term liabilities

72,239

84,647

Total liabilities

1,282,146

1,382,400

Stockholders’ equity:

Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2017 and 2016

7,444

7,444

Additional paid-in capital

413,865

409,805

Treasury stock, at cost – 36,967,119 shares in 2017 and 36,951,522 shares in 2016

(1,097,300

)

(1,096,744

)

Retained earnings

1,313,209

1,507,057

Accumulated other comprehensive loss

(43,539

)

(46,456

)

Total stockholders’ equity

593,679

781,106

Total liabilities and stockholders’ equity

$

1,875,825

$

2,163,506

For the Six Months Ended

June 30,

2017

2016

Cash Flows From Operating Activities:

Net (loss) income

$

(183,498

)

$

29,463

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Depreciation and amortization

21,534

22,936

Share-based compensation

4,038

5,689

Gain on the disposition of property, plant and equipment

(656

)

(739

)

Amortization of capitalized financing costs

804

332

Excess tax cost related to share-based compensation

-

193

Deferred income taxes

(270

)

(2,765

)

Impairment of goodwill

198,828

-

Pension settlement charge

-

11,744

Changes in operating assets and liabilities:

Decrease (increase) in accounts receivable, net

14,434

(28,439

)

Decrease (increase) in inventory

76,757

(44,017

)

Increase in other assets

(1,178

)

(36,529

)

Increase in accounts payable

24,133

43,429

Decrease in accrued liabilities

(19,603

)

(12,219

)

Decrease in other liabilities

(9,512

)

(5,062

)

Net cash provided by (used in) operating activities

125,811

(15,984

)

Cash Flows From Investing Activities:

Capital expenditures

(13,677

)

(19,327

)

Proceeds from the disposition of property, plant and equipment

-

2,770

Net cash used in investing activities

(13,677

)

(16,557

)

Cash Flows From Financing Activities:

Net borrowings under revolving credit facility

31,375

43,876

Borrowings under Term Loan

77,600

-

Repayments under Term Loan

(1,518

)

-

Net repayments under Securitization Program

(200,000

)

-

Net (disbursements) proceeds from share-based compensation arrangements

(600

)

1,285

Acquisition of treasury stock, at cost

-

(6,839

)

Payment of cash dividends

(10,339

)

(10,237

)

Excess tax cost related to share-based compensation

-

(193

)

Payment of debt issuance costs

(6,277

)

-

Net cash (used in) provided by financing activities

(109,759

)

27,892

Effect of exchange rate changes on cash and cash equivalents

185

366

Net change in cash and cash equivalents

2,560

(4,283

)

Cash and cash equivalents, beginning of period

21,329

29,983

Cash and cash equivalents, end of period

$

23,889

$

25,700

Other Cash Flow Information:

Income tax payments, net

$

19,058

$

27,358

Interest paid

11,809

11,750

•

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

•

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

•

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

•

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

•

Other actions.  Actions, which may be non-recurring events, that result from the changing strategies and needs of the Company and do not reflect the underlying expense of the on-going business. These include charges related to litigation totaling $3.0 million and $9.0 million, respectively, for the three and six months ended June 30, 2017 and transformational expenses totaling $5.4 million and $8.4 million, respectively, for the three and six months ended June 30, 2017. In the three and six months ended June 30, 2016, other actions included a settlement charge of $11.7 million related to a defined benefit plan settlement.

For the Three Months Ended June 30,

2017

2016

Operating expenses

$

161,695

$

169,369

Litigation reserve

(3,000

)

-

Transformational expenses

(5,444

)

-

Defined benefit plan settlement charge

-

(11,744

)

Adjusted operating expenses

$

153,251

$

157,625

Operating income

$

15,869

$

26,454

Operating expense adjustments noted above

8,444

11,744

Adjusted operating income

$

24,313

$

38,198

Net income

$

5,096

$

12,933

        Operating expense adjustments noted above

8,444

11,744

Non-GAAP tax provision on adjustments

Litigation reserve

(1,164

)

-

Transformational expenses

(2,085

)

-

Defined benefit plan settlement charge

-

(4,416

)

Adjusted net income

$

10,291

$

20,261

Diluted earnings per share

$

0.14

$

0.35

Operating expense adjustments noted above

0.23

0.32

Non-GAAP tax provision on adjustments

(0.09

)

(0.12

)

Adjusted diluted earnings per share

$

0.28

$

0.55

Net income

$

5,096

$

12,933

Provision for income taxes

4,474

7,844

Interest expense, net

6,299

5,677

Depreciation and amortization

10,569

11,205

Equity compensation expense

1,570

2,778

Operating expense adjustments noted above

8,444

11,744

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)

$

36,452

$

52,181

Net cash provided by (used in) operating activities

$

72,786

$

(5,163

)

Net cash used in investing activities

(5,365

)

(6,961

)

Free cash flow

$

67,421

$

(12,124

)

For the Six Months Ended June 30,

2017

2016

Operating expenses

$

533,545

$

337,047

Impairment of goodwill

(198,828

)

-

Litigation reserve

(9,000

)

-

Transformational expenses

(8,395

)

-

Defined benefit plan settlement charge

-

(11,744

)

Restructuring charges

-

(254

)

Adjusted operating expenses

$

317,322

$

325,049

Operating (loss) income

$

(170,314

)

$

58,858

Operating expense adjustments noted above

216,223

11,998

Adjusted operating income

$

45,909

$

70,856

Net (loss) income

$

(183,498

)

$

29,463

        Operating expense adjustments noted above

216,223

11,998

Non-GAAP tax provision on adjustments

Impairment of goodwill

(6,559

)

-

Litigation reserve

(3,488

)

-

Transformational expenses

(3,203

)

-

Defined benefit plan settlement charge

-

(4,416

)

Restructuring charges

-

(91

)

Adjusted net income

$

19,475

$

36,954

Diluted (loss) earnings per share ⁽¹⁾

$

(4.97

)

$

0.80

Operating expense adjustments noted above

5.86

0.33

Non-GAAP tax provision on adjustments

(0.36

)

(0.12

)

Adjusted diluted earnings per share

$

0.53

$

1.00

Net (loss) income

$

(183,498

)

$

29,463

Provision for income taxes

146

17,821

Interest expense, net

13,038

11,574

Depreciation and amortization

21,534

22,936

Equity compensation expense

4,038

5,689

Operating expense adjustments noted above

216,223

11,998

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)

$

71,481

$

99,481

Net cash provided by (used in) operating activities

$

125,811

$

(15,984

)

Net cash used in investing activities

(13,677

)

(16,557

)

Free cash flow

$

112,134

$

(32,541

)

(1)

Diluted earnings per share for the six months ended June 30, 2017 under GAAP reflect an adjustment to the basic earnings per share due to the net loss. The diluted earnings per share here does not reflect this adjustment.