- Fourth quarter yields net income and
positive cash flow on a net debt basis
- Acquisition significantly increased
revenue; integration is on schedule
- Net pension liability decreased nearly
$60 million during 2013
Standard Register (NYSE: SR) today announced its financial
results for the fourth quarter and full year 2013.
For the fourth quarter of 2013, the Company reported revenue of
$242.0 million and net income of $9.1 million or $1.14 per diluted
share compared to revenue of $143.6 million and a net loss of $35.3
million or $6.03 per diluted share for the fourth quarter of 2012.
Net income in the fourth quarter of 2013 includes a one-time $5.6
million benefit from a change in vacation policy and a $6.0 million
tax benefit. The fourth quarter last year included a $40.8 million
negative mark-to-market adjustment to pension expense.
For the full year 2013, the Company reported revenue of $719.8
million and a net loss of $7.4 million or $1.16 per diluted share.
The results compare to full year 2012 revenue of $602.0 million and
a net loss of $28.5 million or $4.88 per diluted share.
Adjusted EBITDA, which excludes certain items as detailed in the
attached reconciliation, was $25.5 million compared to $13.0
million for the fourth quarter of 2012. Adjusted EBITDA for the
full year 2013 was $55.1 million compared to $46.8 million for the
full year 2012. Increases for both the fourth quarter and full year
2013 were due in large part to the acquisition of WorkflowOne.
“During 2013 we made good progress toward long-term growth of
the business,” said Joseph P. Morgan, Jr., president and chief
executive officer. “We broadened our customer base, portfolio of
solutions and opportunity for cross-selling with the largest
acquisition the Company has made in recent history, and we are
integrating at a rapid pace. The WorkflowOne acquisition along with
our continued investment in our growth solutions has positioned the
Company to leverage its expertise in communications workflow and
specific experience in key market segments to provide our customers
with complete solutions that utilize multiple channels for their
critical communications.”
Fourth Quarter ResultsTotal revenue was $242.0 million,
an increase of 69 percent from the fourth quarter of 2012. The
fourth quarter 2013 results include revenue from WorkflowOne.
Gross margin as a percentage of revenue was flat at 30 percent
for both the 2013 and 2012 fourth quarters. As a result of the
Company’s continuing focus on expense management, selling, general
and administrative (SG&A) expenses were $58.5 million compared
to $77.1 million for the fourth quarter of 2012. Excluding a $40.8
million negative mark-to-market adjustment to pension expense in
2012, SG&A as a percentage of revenue decreased to 24.2 percent
from 25.3 percent in the prior year.
The Company incurred $1.2 million of additional expense in the
fourth quarter of 2013 for executing the acquisition and $1.6
million of integration costs. Restructuring expenses were $2.6
million in the quarter.
Cash flow on a net debt basis returned to positive in the fourth
quarter at $0.2 million compared to $7.8 million negative in the
third quarter of 2013.
Standard Register operates two business units: Healthcare and
Business Solutions.
Healthcare revenue was $69.5 million, an increase of 32 percent
over revenue of $52.5 million in the fourth quarter of 2012. The
WorkflowOne acquisition contributed positively to the increase in
revenue. Technology-enabled healthcare solutions, including
SMARTworks® Clinical Enterprise and iMedConsent applications, drove
sales to new and existing customers. Volumes in clinical documents
continued to decline but at a slower pace as electronic health
records (EHR) are adopted throughout the healthcare environment.
Operating profit was $7.1 million compared to $4.1 million in the
prior year fourth quarter.
Business Solutions revenue was $172.5 million, an increase of 89
percent over revenue of $91.0 million in the fourth quarter of last
year. The acquisition of WorkflowOne has enhanced our market
insight, advanced our portfolio across all solutions and added to
our capabilities across the most critical communications of our
customers. Operating profit was $8.0 million compared to $2.4
million in the prior year fourth quarter. As previously reported,
revenue from a large financial services customer declined in 2013;
falling $2.4 million during the quarter and $19.2 for the year.
Full Year ResultsTotal revenue for 2013 was $719.8
million, an increase of 20 percent over 2012 revenue. The full year
2013 results include WorkflowOne revenue from August 1, 2013, the
date of the acquisition, through year-end.
Consolidated gross margin as a percent of revenue was 29 percent
for 2013 compared to 30 percent for 2012. Gross margin was
negatively affected $1.8 million by fair value accounting treatment
required for finished goods acquired in the acquisition and was
further affected by the ramp-up of the new digital print and
distribution Center of Excellence in Jeffersonville, Indiana.
SG&A expenses were $182.9 million compared to $200.4 million in
2012, which included a $40.8 million negative mark-to-market
pension adjustment.
The Company incurred $9.0 million of expense for executing the
acquisition in 2013 and an additional $1.8 million of integration
costs. Restructuring expenses were $14.4 million in 2013 compared
to $4.3 million in the prior year. The increase is primarily
related to the Company’s strategic plan adopted in connection with
the acquisition.
Cash flow on a net debt basis was negative by $6.4 million for
2013 compared to a positive $8.2 million for 2012. Excluding $10.4
million of cash payments directly associated with executing the
acquisition, cash flow would have been positive by $4.0
million.
Healthcare revenue increased 7 percent to $230.1 million from
$215.9 million in 2012. Operating profit for 2013 increased 2
percent to $13.0 million from $12.7 million for the prior year.
Business Solutions revenue increased 27 percent to $489.7
million from $386.1 million for 2012. Operating profit for 2013
increased 28 percent to $10.4 million from $8.1 million for the
prior year.
Capital expenditures were $12.2 million compared to $6.0 million
in 2012. The Company continues to invest in its growth solutions.
During 2013, investments were made in infrastructure at its new
digital print and distribution Center of Excellence, digital inkjet
color technology and digital label manufacturing technology, all of
which have improved the capabilities of the Company.
In 2013, the Company announced that it changed its method of
accounting for its pension plans to recognize actuarial gains and
losses in excess of a recognition corridor in the income statement
in the year incurred rather than amortizing them over time. The
change had no impact on benefits to participants, the Company’s
pension liability or pension funding obligations, but total pension
expense in 2013 would have been $24.3 million higher under the
previous method.
Standard Register contributed $24.7 million to the Company’s
qualified pension plan in 2013 and plans to contribute $39.1
million in 2014. The net pension liability decreased during 2013 by
nearly $60 million to $192.8 million as a result of contributions
and rising long-term interest rates. An actuarial pre-tax gain of
$33.2 million was recorded in accumulated other comprehensive
losses as it was within the recognition corridor.
WorkflowOne Integration UpdateThe Company has made
significant progress in its integration of WorkflowOne operations
and sales. Headquarters consolidation is nearly complete, four
printing facilities have been closed or are scheduled to close in
2014, the combined sales organizations are fully operational and
the Company has completed its plan for the previously announced $40
million in annual savings following the completion of the
integration expected in 2015.
2013 Highlights
- On August 1, 2013, Standard Register
acquired WorkflowOne in a transaction valued at $216.5 million. The
acquisition provided greater financial stability and flexibility,
extended product lines, expanded the customer base and brought
additional talent into the Company.
- In conjunction with the acquisition,
the Company completed an expansion and renewal of its credit
facility, entering into a five-year $125 million senior-secured
asset-based credit facility that provides additional liquidity and
the ability to capitalize on growth opportunities.
- The Company regained full compliance
with New York Stock Exchange listing standards.
- A 335,000 square foot digital print and
distribution Center of Excellence opened in Jeffersonville,
Indiana, in close proximity to United Parcel Service’s (UPS)
Worldport, optimizing the Company’s operations and providing
enhanced delivery options for marketing communications
solutions.
- The Company invested in
state-of-the-art digital presses with high-volume ink jet
technology that provide a broader and more customized range of
color printing options for customer communications solutions.
- Furthering its partnership with
salesforce.com, the Company launched SMARTworks® Connect, allowing
mutual customers to connect their sales channels to marketing
content, and was recognized for its innovative use of
salesforce.com to build customer profiles.
Conference CallStandard 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, February 21, 2014, to review the fourth quarter results.
The call can be accessed via an audio webcast accessible at
http://www.standardregister.com.
About Standard RegisterStandard Register (NYSE:SR), is
trusted by the world’s leading companies to advance their
reputations and add value to their operations by aligning
communications with corporate brand standards. Standard Register’s
business is Connectication: leveraging traditional printing and
technology-enhanced communications solutions to amplify the
effectiveness of connected communications. Providing
market-specific insights and a compelling portfolio of workflow,
content and analytics solutions to address the changing business
landscape in healthcare, financial services, manufacturing,
transportation and retail 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 StatementThis 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 ability
to successfully integrate the acquired assets or achieve the
expected synergies of the WorkflowOne acquisition, access to
capital for expanding in our solutions, the pace at which digital
technologies and electronic health records (EHR) adoption erode the
demand for certain products and services, 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 Measures Presented in This Press ReleaseThe
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 of operating performance, including
Adjusted EBITDA 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 uses Adjusted EBITDA, defined as earnings before
interest, taxes, depreciation and amortization and excludes pension
benefit cost, restructuring and impairment charges, acquisition and
integration expense and certain acquisition fair value and other
miscellaneous adjustments, to evaluate the Company’s results. 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. The Company’s debt covenants are also based on the
Adjusted EBITDA calculation.
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 $125 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 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
(In thousands, except per share amounts) (Unaudited)
Fourth Quarter
Y-T-D
13 Weeks Ended
13 Weeks Ended 52 Weeks Ended 52 Weeks Ended
Dec 29, 2013 Dec 30, 2012 Dec 29, 2013
Dec 30, 2012 $ 242,007 $ 143,550
TOTAL REVENUE
$ 719,783 $ 601,988
170,166
99,975
COST OF SALES 513,315
421,586
71,841 43,575
GROSS
MARGIN 206,468 180,402
OPERATING EXPENSES
58,450 77,057 Selling, general and administrative
182,936 200,434
2,774 374 Acquisition and integration
costs
10,776 982
— — Asset impairments
1,262 —
2,586 933 Restructuring and other exit
costs
14,460 4,278
63,810
78,364
TOTAL OPERATING EXPENSES
209,434 205,694
8,031
(34,789 )
INCOME (LOSS) FROM OPERATIONS (2,966
) (25,292 )
OTHER INCOME (EXPENSE)
(4,994 ) (630 ) Interest expense
(9,861
) (2,689 )
— (10 ) Other income
(expense)
65 39
(4,994 )
(640 )
Total other expense (9,796 ) (2,650 )
3,037 (35,429 )
INCOME (LOSS) BEFORE INCOME
TAXES (12,762 ) (27,942 )
(6,035
) (170 ) Income tax (benefit) expense
(5,349
) 534
$
9,072
$ (35,259 )
NET INCOME (LOSS) $
(7,413 ) $ (28,476 )
7,821 5,846
Average Number of Shares Outstanding - Basic
6,386 5,839
7,949 5,846 Average Number of Shares Outstanding - Diluted
6,386 5,839
$ 1.16 $ (6.03 )
BASIC
INCOME (LOSS) PER SHARE $ (1.16 ) $ (4.88
)
$ 1.14 $ (6.03 )
DILUTED INCOME (LOSS) PER
SHARE $ (1.16 ) $ (4.88 )
$
— $ — Dividends per share declared for the period
$
— $ 0.25 MEMO:
$ 9,212 $ 5,141
Depreciation and amortization
$ 27,064 $ 22,007
$ 2,403 $ 40,824 Mark-to-market pension adjustment
$ 2,403 $ 40,824
SEGMENT OPERATING
RESULTS (In thousands) (Unaudited)
13 Weeks Ended
13 Weeks Ended 52 Weeks
Ended 52 Weeks Ended Dec 29, 2013
Dec 30, 2012 Dec 29, 2013 Dec 30, 2012
REVENUE $ 69,541 $ 52,535 Healthcare
$
230,120 $ 215,883
172,466 91,015
Business Solutions
489,663 386,105
$ 242,007 $ 143,550 Total
Revenue
$ 719,783 $ 601,988
NET INCOME (LOSS) BEFORE TAXES
$ 7,058 $ 4,140 Healthcare
$ 13,026 $
12,704
8,024 2,427 Business Solutions
10,400 8,077
(12,045 ) (41,996 ) Unallocated
(36,188
) (48,723 )
$ 3,037 $
(35,429 ) Total Net Income (Loss) Before Taxes
$
(12,762 ) $ (27,942 )
CONSOLIDATED
BALANCE SHEETS (In thousands) (Unaudited)
Dec 29, 2013 Dec 30, 2012 ASSETS
Cash and cash equivalents
$ 2,342 $ 1,012 Accounts
receivable
157,567 104,513 Inventories
61,939 44,281
Other current assets
14,508 9,248 Total
current assets
236,356 159,054 Plant and equipment
93,003 58,923 Goodwill and intangible assets
133,444
13,389 Deferred taxes
9,306 22,765 Other assets
8,768
5,773 Total assets
$ 480,877
$ 259,904
LIABILITIES AND
SHAREHOLDERS' DEFICIT Current liabilities
$
125,357 $ 74,832 Deferred compensation
3,169 3,498
Long-term debt
263,880 49,159 Pension benefit liability
192,779 252,665 Other long-term liabilities
6,989
6,610 Shareholders' deficit
(111,297 ) (126,860 )
Total liabilities and shareholders' deficit
$ 480,877 $ 259,904
CONSOLIDATED STATEMENTS OF
CASHFLOWS
(In thousands) (Unaudited)
Y-T-D
52 Weeks Ended
52 Weeks Ended Dec 29, 2013 Dec 30,
2012 Net loss plus non-cash items
$ 35,283
$ 42,694 Working capital
5,626 12,452 Restructuring payments
(8,136 ) (8,567 ) Contributions to qualified pension
plan
(24,698 ) (25,000 ) Other
(1,596 )
(3,063 ) Net cash provided by operating activities
6,479 18,516 Additions to plant
and equipment
(12,209 ) (5,972 ) Proceeds from sale
of equipment
336 134 Acquisitions, net of cash received
4,694 — Net cash used in investing
activities
(7,179 ) (5,838 ) Net change
in borrowings under revolving credit facility
7,730 (8,760 )
Debt issuance costs
(2,357 ) — Principal payments on
long-term debt
(2,611 ) (2,483 ) Dividends paid
— (1,502 ) Other
(564 ) (613 ) Net cash
provided by (used in) financing activities
2,198
(13,358 ) Effect of exchange rate
(168
) 123 Net change in cash
$
1,330 $ (557 )
RECONCILIATION OF
GAAP TO NON-GAAP MEASURES (In thousands) (Unaudited)
13
Weeks Ended 13 Weeks Ended
52 Weeks Ended 52 Weeks Ended Dec
29, 2013 Dec 30, 2012 Dec 29, 2013
Dec 30, 2012 $ 9,072 $ (35,259 ) GAAP Net
Income (Loss)
$ (7,413 ) $ (28,476 )
Adjustments:
(6,035 ) (170 ) Income taxes
(5,349 ) 534
4,994 630 Interest
9,861
2,689
9,212 5,141 Depreciation and
amortization
27,064 22,007
$
17,243 $ (29,658 ) EBITDA
$
24,163 $ (3,246 ) Adjustments:
2,586 933 Restructuring and impairment
15,722 4,278
2,774 374 Acquisition and integration costs
10,776
982
1,583 40,581 Pension expense
64 41,471
421
— Fair value adjustments
1,813 —
682 701 Non-cash
stock compensation
2,310 2,706
173 121
Other
278 612
$
25,462 $ 13,052 Adjusted EBITDA
$ 55,126 $ 46,803 GAAP
Net Cash Flow
$ 1,330 $ (557 ) Adjustments: Credit
facility paid (borrowed)
(7,730 ) 8,760
Non-GAAP Net Cash Flow
$ (6,400 ) $
8,203
For Standard RegisterInvestor and media contact:Carol Merry,
614-383-1624carol.merry@fahlgren.com
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