Standard Register (NYSE: SR) today announced its financial
results for the second quarter, which ended July 4, 2010. For the
quarter, the Company reported revenue of $164.7 million and a
breakeven on a per share basis, or a net loss of $0.1 million. The
second quarter results compare to last year’s revenue of $171.0
million and a net profit of $3.2 million, or $0.11 per share.
Through the first half, the Company reported revenue of $332.1
million and a net loss of $0.9 million, or $0.03 per share. The
first half results compare to last year’s revenue of $345.6 million
and a net loss of $7.8 million, or $0.27 per share.
Results from Operations
Stabilization of revenue continued across most business units
during the quarter with the Emerging and Industrial market segments
reporting growth relative to the prior year at four and nineteen
percent respectively. Although revenue declines lessened in
Financial Services, instability within the segment and technology
automation continues to create unit declines in printed products
that are only partially offset by new customer growth. Healthcare
revenues fell below expectations as core document management
printed solutions eroded due to technology advancements and pricing
pressures associated with bringing on new contracts, and labels and
patient identification solutions did not make up for those
declines.
“Although Healthcare revenues came short of expectations, I am
confident that we are on track with our overall strategy,” stated
Joseph Morgan, president and chief executive officer. “Through the
first half of the year, we closed 47 new contracts, 25 of which
were associated with the Novation agreement that was signed last
year. We are also seeing record deals in technology solutions
supporting our intent to expand our offering in this area. It is
imperative that we grow share now in order to allow us to transform
our Healthcare portfolio towards more durable solutions for the
future.”
Gross margin for the Company as a percent of revenue was 31.4
percent for the quarter versus 31.7 percent in the prior year. The
major difference between the two periods was a favorable LIFO
adjustment, which was $0.2 million for the current quarter versus a
favorable $0.8 million during the same period last year. The first
half results were very similar, as gross margin was 31.7 percent
for the current year versus 31.4 percent during the prior year.
Again, the LIFO adjustment was the primary difference between the
two periods with the current period at $1.9 million versus $0.7
million for the prior year. The cost containment portions of the
MyC3 initiative, announced last year, allowed the Company to
maintain the gross margin from operations despite the lower revenue
units.
MyC3 savings efforts in Selling General and Administrative
expenses funded investments in technology, materials science, and
key expertise to support our market development. Also, during the
prior year we experienced a reversal of incentive compensation
related to the first half 2009 results that was not repeated during
the current year. Overall, these changes resulted in a net $2.2
million increase for the quarter and $4.6 million through the first
half.
“The personnel investments we made during the quarter to support
Healthcare, Financial and Industrial are examples of how we
continue to advance our market expertise within these segments,”
said Morgan. “The industry knowledge provided by these resources
will allow us to accelerate our overall transformation efforts in
order to take advantage of the opportunities that exist within
these markets.”
The breakeven results in the second quarter of 2010 included
$4.7 million of pension loss amortization, or $0.10 per share after
tax and $1.0 million of restructuring, or $0.02 per share after
tax. Excluding these items, non-GAAP adjusted net income was $3.3
million, or $0.12 per share, for the second quarter of 2010
compared with non-GAAP adjusted net income of $5.6 million, or
$0.19 per share for the prior year. The first half of 2010 included
$9.3 million of pension loss amortization, or $0.19 per share after
tax and $1.5 million of restructuring, or $0.03 per share after
tax. Excluding these items, non-GAAP adjusted net income was $5.6
million, or $0.19 per share, for the first half of 2010 compared
with non-GAAP adjusted net income of $9.7 million, or $0.33 per
share for the prior year.
Capital expenditures were $10.6 million through the first half
utilizing a combination of $4.3 million in cash and $6.3 million
through operating and capital lease agreements. Capital
expenditures are expected to end the year in the $17-19 million
range. During the second quarter, the Company purchased the assets
of Fusion Graphics, Inc. for approximately $2.5 million.
“The acquisition of Fusion Graphics is another example of our
market focused transformation, in that it allows us to broaden our
intellectual property portfolio and enhance our material science
capabilities while remaining focused on the markets we serve,”
noted Morgan.
Pension funding was $13.5 million through six months with an
additional $15.5 million planned for the balance of the year.
Non-GAAP cash flow on a net debt basis was $10.9 million negative
for the first half, primarily due to increases in working capital
and the Fusion Graphics acquisition.
Dividend
On Thursday, July 29, 2010, Standard Register’s board of
directors declared a quarterly dividend of $0.05 per share payable
on September 10, 2010, to shareholders of record as of August 27,
2010. The board will consider future dividend payments on a
quarter-by-quarter basis in accordance with its normal
practice.
Conference Call
Standard Register’s President and Chief Executive Officer Joe
Morgan and Chief Financial Officer Bob Ginnan will host a
conference call at 10:00 a.m. EDT on July 30, 2010, to review the
second quarter results. The call can be accessed via an audio web
cast accessible at:
http://www.standardregister.com/investorcenter.
About Standard Register
Standard Register is a premier document services provider,
trusted by companies to manage the critical documents they need to
thrive in today’s competitive climate. Employing nearly a century
of industry expertise, Lean Six Sigma methodologies and other
leading technologies, the Company helps organizations increase
efficiency, reduce costs, mitigate risks, grow revenue and meet the
challenges of a changing business landscape. The Company offers
document and label solutions, technology solutions, consulting and
print supply chain services to help clients manage documents
throughout their enterprises. More information is available at
http://www.standardregister.com.
Safe Harbor Statement
This report includes forward-looking statements covered by the
Private Securities Litigation Reform Act of 1995. A forward-looking
statement is neither a prediction nor a guarantee of future events
or circumstances, and those future events or circumstances may not
occur. All statements regarding our expected future financial
condition, revenues or revenue growth, projected costs or cost
savings, cash flows and future cash obligations, dividends, capital
expenditures, business strategy, competitive positions, market
shares, growth opportunities for existing products or products
under development, and objectives of management are forward-looking
statements that involve certain risks and uncertainties. In
addition, forward-looking statements include statements in which we
use words such as “anticipates,” “projects,” “expects,” “plans,”
“intends,” “believes,” “estimates,” “targets,” and other similar
expressions that indicate trends and future events. These
forward-looking statements are based on current expectations and
estimates. We cannot assure you that such expectations will prove
to be correct. The Company undertakes no obligation to update
forward-looking statements as a result of new information, since
these statements may no longer be accurate or timely. Because such
statements deal with future events, actual results for fiscal year
2010 and beyond could differ materially from our current
expectations.
Factors that could cause the Company’s results to differ
materially from those expressed in forward-looking statements
include, without limitation, variation in demand and acceptance of
the Company’s products and services, the frequency, magnitude and
timing of paper and other raw-material price changes, general
business and economic conditions beyond the Company’s control,
timing of the completion and integration of acquisitions, the
consequences of competitive factors in the marketplace, results of
the MyC3 initiative and other cost-containment strategies, and the
Company’s success in attracting and retaining key personnel.
Additional information concerning factors that could cause actual
results to differ materially from those projected is contained in
the Company’s filing with The Securities and Exchange Commission,
including its report on Form 10-K for the year ended January 3,
2010.
Non-GAAP Measures 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 of operating performance
including adjusted 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
asset impairments. We believe that 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 and to establish incentive
compensation.
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
STATEMENT OF OPERATIONS (Dollars in thousands,
except per share amounts)
Second Quarter Y-T-D 13
Weeks Ended 13 Weeks Ended 26 Weeks Ended 26
Weeks Ended 4-Jul-10 28-Jun-09
4-Jul-10 28-Jun-09 $
164,682 $ 171,015
TOTAL REVENUE $
332,105 $ 345,635
112,964
116,833
COST OF SALES 226,778
237,218
51,718 54,182
GROSS MARGIN 105,327 108,417
COSTS AND
EXPENSES 50,508 48,270 Selling, general and
administrative
104,653 100,057
- - Pension settlement
losses
- 19,747
- 850 Asset impairments
- 850
1,026 (394 ) Restructuring and
other exit costs
1,458 207
51,534 48,726
TOTAL COSTS AND EXPENSES 106,111
120,861
184 5,456
INCOME
(LOSS) FROM OPERATIONS (784 ) (12,444 )
OTHER INCOME (EXPENSE) (601 ) (333 ) Interest
expense
(991 ) (636 )
190
209 Other income
192
257
(411 ) (124 )
Total other
expense (799 ) (379 )
(227 )
5,332
(LOSS) INCOME BEFORE INCOME TAXES (1,583
) (12,823 )
(117 )
2,158 Income Tax (Benefit) Expense
(660
) (5,021 )
$ (110
) $ 3,174
NET (LOSS) INCOME $
(923 ) $ (7,802 )
28,912 28,833 Average Number of Shares Outstanding - Basic
28,893 28,816
28,912 28,834 Average Number of Shares
Outstanding - Diluted
28,893 28,816
$ -
$ 0.11
BASIC AND DILUTED INCOME (LOSS) PER SHARE $
(0.03 ) $ (0.27 )
$ 0.05 $ 0.05
Dividends declared for the period
$ 0.10 $ 0.28
MEMO:
$ 6,192 $ 6,201 Depreciation and
amortization
$ 12,279 $ 12,420
$ 4,668
$ 3,546 Pension loss amortization
$ 9,336 $ 8,203
SEGMENT OPERATING RESULTS (Dollars in
thousands)
Second Quarter Y-T-D 13 Weeks Ended
13 Weeks Ended 26 Weeks Ended 26 Weeks Ended
4-Jul-10 28-Jun-09 4-Jul-10
28-Jun-09 REVENUE $ 43,406 $ 47,291
Financial Services
$ 88,120 $ 97,414
43,085 41,374 Emerging
83,307 83,637
86,491
88,665 Total Commercial
171,427 181,051
59,003
66,165 Healthcare
123,264 134,580
19,188
16,185 Industrial
37,414
30,004
$ 164,682
$ 171,015 Total Revenue
$ 332,105
$ 345,635
GROSS MARGIN $
13,431 $ 13,658 Financial Services
$ 26,776 $
28,401
11,383 11,049
Emerging
21,371 22,881
24,814 24,707 Total Commercial
48,147 51,282
21,461 24,195 Healthcare
45,002 48,247
5,230
4,447 Industrial
10,307 8,196
213
833 LIFO adjustment
1,871
692
$ 51,718 $
54,182 Total Gross Margin
$ 105,327
$ 108,417
OPERATING INCOME (LOSS)
$ 2,370 $ 2,025 Financial Services
$
3,467 $ 4,727
(602 ) (547
) Emerging
(2,920 ) (894 )
1,768 1,478 Total Commercial
547 3,833
4,062 7,078 Healthcare
8,024 12,567
(454
) 314 Industrial
(1,149 ) (573 )
(5,603 ) (3,538 ) Unallocated
(9,005 ) (28,650 )
$ (227
) $ 5,332 Total Operating (Loss) Income
$ (1,583 ) $ (12,823 )
BALANCE SHEET (Dollars in thousands)
4-Jul-10
3-Jan-10 ASSETS Cash and cash
equivalents
$ 1,118 $ 2,404 Accounts and notes
receivable
105,744 108,524 Inventories
29,803 33,625
Other current assets
26,405
24,504 Total current assets
163,070 169,057
Plant and equipment
82,036 85,740 Goodwill and intangible
assets
8,905 6,557 Deferred taxes
102,681 104,691
Other assets
13,188 13,676 Total assets
$ 369,880 $ 379,721
LIABILITIES AND SHAREHOLDERS' EQUITY Current portion
long-term debt
$ 1,421 $ 35,868 Other current
liabilities
66,574 77,349 Deferred compensation
6,782
7,699 Long-term debt
49,222 - Retiree healthcare obligation
7,195 7,425 Pension benefit obligation
186,295
202,146 Other long-term liabilities
7,175 7,080
Shareholders' equity
45,216 42,154
Total liabilities and shareholders' equity
$ 369,880
$ 379,721
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
26 Weeks Ended 4-Jul-10
28-Jun-09 Net loss plus non-cash items
$
20,447 $ 27,401 Working capital
74 10,541
Restructuring payments
(3,450 ) (2,864 )
Contributions to qualified pension plan
(13,500 )
(14,500 ) Other (1)
(4,036 )
(7,084 ) Net cash (used in) provided by operating activities
(465 ) 13,494 Capital
expenditures, net
(4,346 ) (5,036 ) Acquisition
(2,460 ) - Proceeds from sale of equipment
65 - Net cash used in investing
activities
(6,741 ) (5,036 ) Net
change in borrowings under credit facility
9,570 (378 )
Principal payments on long-term debt
(777 ) (159 )
Dividends paid
(2,909 ) (8,142 ) Other
61 105 Net cash provided by
(used in) financing activities
5,945
(8,574 ) Effect of exchange rate
(25 )
74 Net change in cash
$ (1,286
) $ (42 ) (1) Includes deferred compensation
an non-qualified pension payments and changes in other non-current
assets and liabilities
RECONCILIATION OF
GAAP TO NON-GAAP MEASURES (Dollars in thousands, except per
share amounts)
Second Quarter Y-T-D 13
Weeks Ended 13 Weeks Ended 26 Weeks Ended 26
Weeks Ended 4-Jul-10 28-Jun-09
4-Jul-10 28-Jun-09 $ (110
) $ 3,174 GAAP Net (Loss) Income
$ (923
) $ (7,802 ) Adjustments, net of tax:
2,814
2,138 Pension loss amortization
5,629 4,946
- -
Pension settlement losses
- 11,905
619 275
Restructuring and impairment charges
879 637
$ 3,323 $
5,587 Non-GAAP Net Income
$ 5,585
$ 9,686
$ - $ 0.11 GAAP
Income (Loss) Per Share
$ (0.03 ) $ (0.27 )
Adjustments, net of tax:
0.10 0.07 Pension loss
amortization
0.19 0.17
- - Pension settlement losses
- 0.41
0.02 0.01 Restructuring and impairment charges
0.03 0.02
$
0.12 $ 0.19 Non-GAAP Income Per Share
$ 0.19 $ 0.33 GAAP
Net Cash Flow
$ (1,286 ) $ (42 ) Adjustments:
Credit facility paid (borrowed)
(9,570 ) 378
Non-GAAP Net Cash Flow
$ (10,856
) $ 336
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