Standard Register (NYSE: SR), a leader in critical
communications management solutions, today announced its financial
results for the third quarter and first nine months of 2012. The
Company reported third-quarter 2012 revenue of $145.7 million and a
net loss of $2.6 million or $0.09 per share. The results compare to
prior year third quarter revenue of $157.5 million and net income
of $8.4 million or $0.29 per share. The 2011 third quarter included
a $20.2 million ($12.2 million after tax) one-time benefit related
to termination of the Company’s postretirement healthcare plan, so
comparable results improved $1.2 million over the prior year
quarter.
Non-GAAP net income from operations after adjustments for
pension loss amortization, pension settlement, restructuring
charges, postretirement plan termination, tax effect of adjustments
and deferred tax valuation allowances was $2.5 million or $0.09 per
share for the third quarter of 2012, compared to break even for the
same period in 2011.
Through the first nine months of 2012, the Company reported
revenue of $458.4 million and a net loss of $8.9 million or $0.30
per share. The first nine months results compare to last year’s
revenue of $486.7 million and net income of $7.8 million or $0.27
per share for the same period of 2011. Non-GAAP adjusted net income
from operations for the first nine months of 2012 was $8.2 million
or $0.29 per share compared to non-GAAP adjusted net income of $6.8
million or $0.24 per share for the nine months of 2011.
The Company previously announced the loss of a portion of its
business with a large financial services customer due to the
customer’s restructuring. Revenue from this customer declined $10.6
million in the third quarter ($3.7 million in Core solutions and
$6.9 million in Legacy products) and $16.6 million in the first
nine months ($5.3 million in Core solutions and $11.3 million in
Legacy products). The Company has revised its expectation for 2012
to a loss of $24 to $25 million in revenue from this customer, $8
million in Core solutions and the balance in Legacy products.
“Underlying operating performance and our financial stability
continue to improve despite a revenue decline in the quarter
primarily related to the expected decreases in our Legacy products
and in business from one large customer,” said Joseph P. Morgan,
Jr., president and chief executive officer. “On a year-to-date
basis, revenue from Core growth solutions increased.”
Morgan continued, “Our transformation and the new solutions
we’re bringing to market resulted in another quarter of sales
momentum. In Healthcare, we signed more new contracts than in any
prior quarter since the business unit was established, and we are
seeing more subscriptions for our technology-oriented solutions,
with longer terms and better product mix. In Business Solutions,
customer communications and on-demand digital publishing are
growing, in part due to the investments in digital equipment we
made in 2011. Our challenges are the uncertainty of the economic
environment, our pension contribution expense and pricing pressures
that impact our margins. We are implementing our restructuring plan
ahead of schedule, making aggressive improvements in our sales,
delivery channel and customer service organizations, and managing
costs throughout the business. We are confident in our strategy and
can reaffirm that we expect to end 2012 with at least $5 million in
positive cash flow.”
Third Quarter Results
Total revenue declined 7 percent to $145.7 million in the third
quarter compared to $157.5 million in the third quarter of 2011.
Nearly all of the decline was attributable to the loss of business
from the large financial services customer. Core solutions, the
Company’s priority growth products and services, declined less than
1 percent; excluding the loss from the large financial services
customer, Core solutions grew 5 percent. Legacy products, generally
transactional documents and print materials, declined 12
percent.
Healthcare revenue declined 11 percent for the quarter, to $51.5
million compared to $57.7 million in the prior year quarter. The
decline was driven primarily by net unit decreases, with growth in
technology-related Core solutions offset by declines in Legacy
products. Operating income for the third quarter was $2.3 million
compared to $3.9 million for the same period in 2011. Excluding the
third quarter 2011 postretirement plan allocation of $1.9 million,
operating income improved over the prior year quarter. Dialog
Medical, a component of patient information solutions, was acquired
in July 2011 and incorporated into the Company’s reporting in the
third quarter of 2011.
Business Solutions revenue for the third quarter was $94.2
million, a decrease of 6 percent compared to third quarter 2011
revenue of $99.8 million. Excluding the loss of business from the
large financial services customer, revenue increased $5.0 million
over the prior year. Core solutions growth, particularly in
customer communications and on-demand publishing, was partially
offset by net unit decreases in Legacy transactional products.
Operating income for the third quarter was $2.3 million compared to
$2.0 million in the third quarter last year. Excluding the
postretirement plan allocation of $3.2 million, year over year
operating income improved significantly.
Consolidated gross margin as a percent of revenue was 29.0
percent, unchanged from the third quarter of 2011. Some new
business at lower margins and declining sales in higher margin
products were offset by savings from ongoing restructuring
activities and other cost-saving initiatives. Selling, general and
administrative (SG&A) expenses declined 16 percent in the
quarter.
First Nine Months Results
Total revenue declined 6 percent to $458.4 million compared to
$486.7 million for the first nine months of 2011. Of the decline,
$16.6 million was from the loss of business at the large financial
services customer and the remainder was primarily a result of
Legacy product unit volumes declining more rapidly than growth in
Core solutions sales. In the first nine months of 2012, Core
solutions grew 2 percent (4.9% excluding the loss of business at
the large financial services customer). Legacy products declined 11
percent. At the end of the first nine months of 2012, Core
solutions accounted for 43 percent of revenue, compared to 40
percent at the end of the third quarter last year. Legacy products
correspondingly declined to 57 percent from 60 percent for the same
periods.
Healthcare revenue declined 8 percent to $163.3 million from
$177.4 million in the first nine months of 2011. Operating income
for the first nine months of 2012 was $8.6 million compared to
$12.4 million for the prior year ($10.5 million after excluding the
postretirement plan allocation of $1.9 million).
Business Solutions revenue declined to $295.1 million from
$309.3 million in the first nine months of the prior year and
nearly all of the 5 percent decline was from the loss of business
at the large financial services customer. Operating income
increased by 19 percent to $5.6 million from $4.8 million (or $1.6
million excluding the postretirement plan allocation of $3.2
million).
Consolidated gross margin as a percent of revenue was 30 percent
in the first nine months of 2012, compared to 31 percent for the
same period in 2011. SG&A expense declined 11 percent in the
first nine months of 2012, to $138.6 million from $155.5 million in
the prior year. SG&A expense for the first nine months of 2011
included a credit of $3.3 million from amortization of prior
service credits before the termination of the postretirement
healthcare benefits plan.
Cash flow on a net debt basis was positive by $4.0 million
year-to-date in 2012 compared to a negative $5.8 million at the end
of the first three quarters of 2011.
Capital Expenditures, Restructuring and Pension Contribution
Updates
Through the first nine months of 2012, capital expenditures were
$2.4 million. Expected capital expenditures for the full year 2012
are in the range of $7 million to $11 million. The Company
continues to invest at a prudent level to support Core technology
solutions growth and to increase efficiencies with management
reporting systems and customer service. Restructuring efforts have
more clearly defined investments that will produce the best
return.
In January 2012, the Company announced a two-year strategic
restructuring plan to better align its resources in support of the
growing Core solutions business and reduce costs to offset the
impact of declining revenues in Legacy products. The Company has
identified additional savings initiatives and currently expects
annual savings of approximately $60 million by the end of 2013.
Costs associated with the restructuring program are expected to be
approximately $11.5 million by the end of 2013.
Standard Register has contributed $18.7 million to the Company’s
qualified pension plan in the first nine months of 2012 and expects
to contribute at least another $2 million in the fourth quarter.
Based on provisions of the highway reauthorization legislation
signed into law in July, the Company updated pension-funding
expectations for 2012 and 2013, which were previously expected to
total $53 million. With relief provided by the Moving Ahead for
Progress in the 21st Century Act (MAPS-21), commonly called the
highway bill, the contribution for 2012 is expected to be $20.7
million and $26.8 million in 2013, a decrease of $5.5 million from
the earlier estimate. Currently, the Company expects contributions
to total $42 million in 2014.
Conference Call
Standard Register’s President and Chief Executive Officer Joseph
P. Morgan, Jr. and Chief Financial Officer Robert Ginnan will host
a conference call at 10:00 a.m. EDT on Friday, October 26, 2012, to
review the third quarter results. The call can be accessed via an
audio webcast accessible at
http://www.standardregister.com/investorcenter.
About Standard Register
Standard Register (NYSE:SR), celebrating 100 years of
innovation, is trusted by the world’s leading companies to advance
their reputations by aligning communications with corporate
standards and priorities. Providing market-specific insights and a
compelling portfolio of solutions to address the changing business
landscape in healthcare, financial services, commercial and
industrial markets, Standard Register is the recognized leader in
the management and execution of mission-critical communications.
More information is available at
http://www.standardregister.com.
Safe Harbor Statement
This press release contains forward-looking statements covered
by the Private Securities Litigation Reform Act of 1995. Because
such statements deal with future events, they are subject to
various risks and uncertainties and actual results could differ
materially from the Company’s current expectations.
Factors that could cause the Company’s results to differ
materially from those expressed in forward-looking statements
include, without limitation, our access to capital for expanding in
Core solutions, the pace at which digital technologies erode the
demand for certain legacy products, the success of our plans to
deal with the threats and opportunities brought by digital
technology, results of cost containment strategies and
restructuring programs, our ability to attract and retain key
personnel, variation in demand and acceptance of the Company’s
products and services, frequency, magnitude and timing of paper and
other raw material price changes, the timing of the completion and
integration of acquisitions, general business and economic
conditions beyond the Company’s control, and the consequences of
competitive factors in the marketplace, including the ability to
attract and retain customers. The Company undertakes no obligation
to revise or update forward-looking statements as a result of new
information, since these statements may no longer be accurate or
timely. For more information, see the Company’s most recent Form
10-K and other filings with the Securities and Exchange
Commission.
Non-GAAP Measure Presented in This Press Release
The Company reports its results in accordance with Generally
Accepted Accounting Principles in the United States (GAAP).
However, we believe that certain non-GAAP measures found in this
press release, when presented in conjunction with comparable GAAP
measures, are useful for investors. Generally, a non-GAAP financial
measure is a numerical measure of a company’s performance,
financial position, or cash flows where amounts are either excluded
or included, not in accordance with generally accepted accounting
principles. We discuss several measures operating performance
including non-GAAP net income and earnings per share and cash flow
on a net debt basis, which are not calculated in accordance with
GAAP. These non-GAAP measures should not be considered as
substitutes for, or superior to, results determined in accordance
with GAAP.
Management evaluates the Company’s results, excluding pension
loss amortization, pension settlements, restructuring charges, and
deferred tax valuation allowances. We believe this non-GAAP
financial measure is useful to investors because it provides a more
complete understanding of our current underlying operating
performance, a clearer comparison of current period results with
past reports of financial performance, and greater transparency
regarding information used by management in its decision-making.
Internally, management and our Board of Directors use this non-GAAP
measure to evaluate our business performance.
In addition, because our credit facility is borrowed under a
revolving credit agreement, which currently permits us to borrow
and repay at will up to a balance of $100 million (subject to
limitations related to receivables, inventories, and letters of
credit), we take the measure of cash flow performance prior to
borrowing or repayment of the credit facility. In effect, we
evaluate cash flow as the change in net debt (credit facility debt
less cash and cash equivalents).
The table below provides a reconciliation of these non-GAAP
measures to their most comparable measure calculated in accordance
with GAAP.
THE STANDARD REGISTER COMPANY CONSOLIDATED STATEMENTS OF
OPERATIONS (Dollars in thousands, except per share amounts)
(Unaudited)
13 Weeks
Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks
Ended 30-Sep-12 2-Oct-11 30-Sep-12
2-Oct-11 $ 145,722 $ 157,543
TOTAL REVENUE $ 458,438 $ 486,717
103,690 111,392
COST
OF SALES 321,611 336,351
42,032 46,151
GROSS MARGIN
136,827 150,366
COSTS AND EXPENSES
43,053 51,140 Selling, general and administrative
138,648 155,473
- (20,239 ) Pension settlement and
postretirement plan amendment
983 (19,786 )
733 112 Restructuring and other
exit costs
3,345 (65 )
43,786 31,013
TOTAL
COSTS AND EXPENSES 142,976
135,622
(1,754 ) 15,138
(LOSS)
INCOME FROM OPERATIONS (6,149 ) 14,744
OTHER INCOME (EXPENSE) (670 ) (630 ) Interest
expense
(2,059 ) (1,774 )
10
60 Other income
49
558
(660 ) (570 )
Total other
expense (2,010 ) (1,216 )
(2,414
) 14,568
(LOSS) INCOME BEFORE INCOME TAXES
(8,159 ) 13,528
202
6,214 Income tax expense
704
5,742
$ (2,616
) $ 8,354
NET (LOSS) INCOME $
(8,863 ) $ 7,786
29,232 29,048 Average Number of Shares Outstanding - Basic
29,182 29,035
29,232 29,204 Average Number of Shares
Outstanding - Diluted
29,182 29,199
$
(0.09 ) $ 0.29
BASIC AND DILUTED (LOSS) INCOME PER
SHARE $ (0.30 ) $ 0.27
$
- $ 0.05 Dividends per share declared for the period
$ 0.05 $ 0.15 MEMO:
$ 4,896 $
5,264 Depreciation and amortization
$ 16,866 $ 15,884
$ 5,773 $ 6,070 Pension loss amortization
$
17,331 $ 18,212
SEGMENT OPERATING
RESULTS (Dollars in thousands) (Unaudited)
13 Weeks
Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks
Ended 30-Sep-12 2-Oct-11 30-Sep-12
2-Oct-11 REVENUE $ 51,535 $
57,717 Healthcare
$ 163,348 $ 177,440
94,187 99,826 Business Solutions
295,090 309,277
$
145,722 $ 157,543 Total Revenue
$ 458,438 $ 486,717
NET (LOSS) INCOME BEFORE TAXES $ 2,222 $ 3,858
Healthcare
$ 8,564 $ 12,365
2,365 1,993
Business Solutions
5,650 4,808
(7,001 )
8,717 Unallocated
(22,373
) (3,645 )
$ (2,414 )
$ 14,568 Total Net (Loss) Income Before Taxes
$ (8,159 ) $ 13,528
CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
(Unaudited)
30-Sep-12 1-Jan-12
ASSETS Cash and cash equivalents
$ 1,175 $
1,569 Accounts receivable
106,519 113,403 Inventories
46,752 48,822 Other current assets
10,051
9,058 Total current assets
164,497 172,852 Plant and equipment
$
60,277 $ 73,950 Goodwill and intangible assets
13,662
14,479 Deferred taxes
23,991 23,996 Other assets
5,982 8,584 Total assets
$ 268,409 $ 293,861
LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities
79,320 83,443 Deferred compensation
3,567 5,777
Long-term debt
54,158 60,149 Pension benefit obligation
212,530 236,206 Other long-term liabilities
6,992
7,339 Shareholders' deficit
(88,158 )
(99,053 ) Total liabilities and shareholders' deficit
$ 268,409 $ 293,861
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in
thousands) (Unaudited)
39 Weeks Ended 39 Weeks Ended
30-Sep-12 2-Oct-11 Net income (loss)
plus non-cash items
$ 30,591 $ 25,472 Working capital
10,541 12,371 Restructuring payments
(7,550 )
(1,103 ) Contributions to qualified pension plan
(18,703
) (20,000 ) Other
(4,727 )
(130 ) Net cash provided by operating activities
10,152 16,610
Capital expenditures, net
(2,441 ) (12,022 ) Proceeds
from sale of equipment
104 40 Acquisition, net of cash
received
- (4,905 ) Net cash
used in investing activities
(2,337 )
(16,887 ) Net change in borrowings
under credit facility
(4,364 ) 5,772 Principal
payments on long-term debt
(1,914 ) (1,091 )
Dividends paid
(1,500 ) (4,380 ) Other
(613 ) 78 Net cash (used in)
provided by financing activities
(8,391 )
379 Effect of exchange rate
182 (119 ) Net change in cash
$
(394 ) $ (17 )
RECONCILIATION OF GAAP TO NON-GAAP MEASURES (Dollars in
thousands, except per share amounts) (Unaudited)
13 Weeks
Ended 13 Weeks Ended 39 Weeks Ended 39 Weeks
Ended 30-Sep-12 2-Oct-11 30-Sep-12
2-Oct-11 $ (2,616 ) $
8,354 GAAP Net Income (Loss)
$ (8,863 ) $
7,786 Adjustments:
5,773 6,070 Pension loss
amortization
17,331 18,212
- (20,239 ) Pension
settlement and postretirement plan amendment
983 (19,786 )
733 112 Restructuring charges
3,345 (65 )
(2,567 ) 5,582 Tax effect of adjustments (at
statutory tax rates)
(8,544 ) 651
1,194
- Deferred tax valuation allowance
3,990 -
$
2,517 $ (121 ) Non-GAAP Net Income
$
8,242 $ 6,798
$
(0.09 ) $ 0.29 GAAP Income (Loss) Per Share
$
(0.30 ) $ 0.27 Adjustments, net of tax:
0.12 0.13 Pension loss amortization
0.36 0.38
- (0.42 ) Pension settlement and postretirement plan
amendment
0.02 (0.41 )
0.02 - Restructuring charges
0.07 -
0.04 -
Deferred tax valuation allowance
0.14
-
$ 0.09 $ -
Non-GAAP Income (Loss) Per Share
$ 0.29
$ 0.24 GAAP Net Cash Flow
$ (394
) $ (17 ) Adjustments: Credit facility paid
4,364 (5,772 ) Non-GAAP Net Cash Flow
$ 3,970 $ (5,789 )
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