Standard Register (NYSE: SR) today announced its financial
results for the second quarter of 2013. The Company reported
revenue of $136.8 million and a net loss of $4.8 million or $0.80
per share. The results compare to second quarter 2012 revenue of
$155.1 million and a net loss of $1.1 million or $0.19 per share.
The number of shares and net income/loss per share for prior
periods have been adjusted on a retroactive basis to reflect the
Company’s 1-for-5 reverse stock split, which was effective May 9,
2013.
Non-GAAP net income, after adjustments for pension loss
amortization, pension settlement, restructuring charges and related
tax effects, was $1.5 million or $0.25 per share compared to $3.8
million or $0.66 per share for the second quarter of 2012.
In a separate announcement this morning, Standard Register said
that it has acquired WorkflowOne, a printing and document
management firm with complementary business and market presence.
The announcement also contained information on Standard Register’s
renewal and expansion of its credit facility.
“Although we still face the volatility of a declining market for
our traditional printing products, the investments we have made in
technology-enabled solutions have created a portfolio with
increasing relevance in the market,” said Joseph P. Morgan, Jr.,
president and chief executive officer. “We are particularly
enthused with the near-term and long-term value creation benefits
of the acquisition announced this morning. Along with the increased
capabilities from combining our sales and operations with those of
WorkflowOne, we are looking to the future of our industry and
positioning our company for incremental growth opportunities by
utilizing the cash flow from our now larger manufacturing network
to invest in workflow, communications and analytics innovation.
This is a bold move at the right time with the right financial
structure. It makes our pension obligation more manageable, and
gives us additional resources to execute within our strategy.”
Second Quarter Results
Total revenue declined 11.8 percent to $136.8 million compared
to $155.1 million in the prior year quarter. The decline was
primarily the result of reduced volumes in printed clinical forms
and transactional documents.
Healthcare revenue declined 12.0 percent to $48.2 million
compared to $54.8 million in the second quarter of 2012. Operating
profit declined to $1.8 million from $3.8 million in the prior year
quarter. Healthcare technology-enabled solutions sales to both new
and existing customers continued to be strong during the quarter,
offsetting some of the volume decline in clinical documents and the
effect of large one-time projects in the first and second quarters
of 2012.
Business Solutions revenue declined 11.7 percent to $88.6
million from $100.3 million in the second quarter last year.
Approximately half of this decline is due to reductions in revenue
with a large financial services customer that reorganized its
distribution channels and restructured operations. Revenue from
this customer declined $6.0 million during the quarter. The decline
in revenue from this customer is expected to slow during the second
half of the year and to total $18 to $20 million for the year.
Lower volumes in printed documents also contributed to the revenue
decline. Operating profit declined to $0.9 million compared to $2.6
million last year.
Gross margin as a percentage of revenue decreased to 28.5
percent from 30.0 percent for the same quarter last year. Pricing
pressure and declines in volume contributed to the change. Selling,
general and administrative (SG&A) expenses declined 5.7 percent
in the quarter reflecting the realization of the restructuring and
cost reduction efforts.
First Half of Year Results
Total revenues declined 11.0 percent to $278.4 million and the
Company incurred a net loss of $6.8 million or $1.15 per share for
the first half of 2013, compared to revenue of $312.7 million and a
net loss of $6.2 million or $1.07 per share for the first half of
2012.
Non-GAAP net income, after adjustments for pension loss
amortization, pension settlement, restructuring charges and related
tax effects, was $4.8 million or $0.82 per share compared to $5.7
million or $0.98 per share for the first half of 2012.
Healthcare revenues declined 12.6 percent to $97.7 million from
$111.8 million in the first half of 2012. Operating profit for the
first half of 2013 was $3.9 million compared to $6.3 million for
the prior year.
Business Solutions revenues declined 10.1 percent to $180.7
million from $200.9 million in the first half of the prior year.
Operating profit increased by 16.5 percent to $3.8 million from
$3.3 million.
Consolidated gross margin as a percent of revenue was 29.1
percent in the first half of 2013 compared to 30.3 percent for the
same period in 2012. SG&A expense declined 10.7% in the first
half of 2013 to $85.4 million from $95.6 million in the prior
year.
Capital expenditures were $6.3 million compared to $1.2 million
in the first half of last year. The company continues to invest in
its Jeffersonville, Ind., digital print and distribution Center of
Excellence, which has begun operations. Investments were also made
in software technology and an upgrade to the SMARTworks® workflow
platform that was released during the quarter.
The Company contributed $10.5 million to its qualified pension
plan in the first half of 2013 compared to $13.5 million in the
first half of 2012. Total pension contributions for 2013 are
expected to be $24.8 million compared to $22.7 million of
contributions made in 2012. The Company is encouraged by the recent
rise in long-term interest rates. If rates hold at their present
level, the Company’s pension liability would be reduced at the end
of 2013 by an actuarial gain.
Cash flow on a net debt basis was positive by $1.2 million for
the first half of 2013 compared to negative cash flow of $0.7
million for the first half of 2012.
Acquisition of WorkflowOne
Standard Register announced today that it has acquired
WorkflowOne in a transaction valued at $218 million, financed by
assuming $210 million of long-term debt and the issuance of
warrants with an estimated value of $8 million. The transaction
advances Standard Register’s revenue position, enhances its product
and solutions portfolio, broadens its customer base, improves its
cost structure and provides greater financial flexibility and
stability.
Standard Register expects to achieve $1 billion in annual
revenue and $40 million in annual savings when the integration of
the two companies is complete. The acquisition is expected to
deliver value creation benefits immediately from combined sales and
operating capabilities and to improve 2013 EBITDA (a non-GAAP
measure of earnings before interest, taxes, depreciation and
amortization). The Company will go to market under the Standard
Register corporate umbrella and will rapidly integrate its
operations. WorkflowOne will initially operate as a subsidiary of
Standard Register. Joseph P. Morgan, Jr., president and chief
executive officer of Standard Register, will lead the combined
company. Timothy A. Tatman, former president and chief executive
officer of WorkflowOne, will serve in an advisory capacity through
the integration.
Renewal and Expansion of Credit Facility
Standard Register announced today that it has completed an early
renewal and an expansion of its credit facility. The Company
entered into a five-year $125 million senior-secured asset-based
credit facility that provides additional liquidity and the ability
to capitalize on opportunities for growth aligned with its
strategic objectives. The new facility amends and extends its
existing credit facility, which was due to mature on March 31,
2014. The facility is secured by the Company’s existing and future
working capital assets. Proceeds from the new credit facility will
be used for financing working capital, expanding investment and for
general corporate purposes for the newly combined company. Bank of
America, N.A. is the Lead Arranger for the credit facility.
Adjustment of Earnings Per Share due to Reverse Split
All references to shares of common stock and per share data for
all periods presented in the accompanying unaudited financial
statements have been adjusted to reflect the reverse stock split on
a retroactive basis.
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 Thursday, August 1, 2013, to
review the second quarter results and the transaction announced
this morning. The call can be accessed via an audio webcast
accessible at http://www.standardregister.com/investorcenter.
About Standard Register
Standard 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 standards and
priorities. Providing market-specific insights and a compelling
portfolio of workflow, communications and analytics solutions to
address the changing business landscape in healthcare, financial
services, manufacturing 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 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 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 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 of 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
certain adjustments to the deferred tax valuation allowance. 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 (In thousands, except per share
amounts) (Unaudited)
Second Quarter
Y-T-D
13 Weeks Ended
13 Weeks Ended
26 Weeks Ended 26 Weeks Ended Jun 30,
2013 Jul 1, 2012 Jun 30, 2013 Jul 1,
2012 $ 136,817 $ 155,067
TOTAL
REVENUE $ 278,437 $ 312,716
97,762
108,473
COST OF SALES 197,462
217,921
39,055 46,594
GROSS
MARGIN 80,975 94,795
OPERATING EXPENSES
42,794 45,380 Selling, general and administrative
85,386 95,595
— — Pension settlement
— 983
193 1,490 Restructuring and other exit
costs
819 2,612
42,987
46,870
TOTAL OPERATING EXPENSES
86,205 99,190
(3,932
) (276 )
LOSS FROM OPERATIONS (5,230 )
(4,395 )
OTHER INCOME (EXPENSE) (530 )
(685 ) Interest expense
(1,154 ) (1,389 )
59
23 Other income
58 39
(471 ) (662 )
Total other expense
(1,096 ) (1,350 )
(4,403 ) (938
)
LOSS BEFORE INCOME TAXES (6,326 ) (5,745 )
307 197 Income tax expense
434 502
$ (4,710
) $ (1,135 )
NET LOSS $ (6,760
) $ (6,247 )
5,925 5,840 Average Number
of Shares Outstanding - Basic
5,898 5,831
5,925 5,840
Average Number of Shares Outstanding - Diluted
5,898 5,831
$ (0.80 ) $ (0.19 )
BASIC AND
DILUTED LOSS PER SHARE $ (1.15 ) $ (1.07 )
$ — $ — Dividends per share declared for the
period
$ — $ 0.25 MEMO:
$ 4,938
$ 6,148 Depreciation and amortization
$ 10,004 $
11,970
$ 6,898 $ 5,773 Pension loss amortization
$ 13,796 $ 11,558
SEGMENT OPERATING
RESULTS (In thousands) (Unaudited)
13 Weeks Ended
13 Weeks Ended 26 Weeks Ended 26
Weeks Ended Jun 30, 2013 Jul 1, 2012
Jun 30, 2013 Jul 1, 2012 REVENUE
$ 48,176 $ 54,763 Healthcare
$ 97,671 $
111,813
88,641 100,304 Business
Solutions
180,766 200,903
$ 136,817 $ 155,067 Total
Revenue
$ 278,437 $ 312,716
NET (LOSS) INCOME BEFORE TAXES $ 1,769
$ 3,774 Healthcare
$ 3,905 $ 6,342
894 2,613
Business Solutions
3,828 3,285
(7,066 )
(7,325 ) Unallocated
(14,059
)
(15,372
)
$ (4,403 ) $ (938 ) Total Net Loss
Before Taxes
$ (6,326
)
$
(5,745
)
CONSOLIDATED BALANCE SHEETS (In thousands)
(Unaudited)
Jun 30, 2013 Dec 30,
2012 ASSETS Cash and cash equivalents
$
481
$ 1,012 Accounts receivable
99,423 104,513 Inventories
41,930 44,281 Other current assets
10,398
9,248 Total current assets
152,232 159,054 Plant and equipment
56,310
58,923 Goodwill and intangible assets
12,909 13,389 Deferred
taxes
22,765 22,765 Other assets
5,384
5,773 Total assets
$
249,600
$ 259,904
LIABILITIES AND
SHAREHOLDERS' DEFICIT Current liabilities
$
73,001
$ 74,832 Deferred compensation
2,907 3,498 Long-term debt
46,244 49,159 Pension benefit liability
239,410
252,665 Other long-term liabilities
6,901 6,610
Shareholders' deficit
(118,863 ) (126,860 )
Total liabilities and shareholders' deficit
$
249,600
$ 259,904
CONSOLIDATED STATEMENTS OF
CASHFLOWS (In thousands) (Unaudited)
Y-T-D 26
Weeks Ended 26 Weeks Ended Jun 30, 2013
Jul 1, 2012 Net loss plus non-cash items
$
17,761
$ 21,290 Working capital
5,516 4,168 Restructuring payments
(1,329 ) (3,646 ) Contributions to qualified pension
plan
(10,521 ) (13,500 ) Other
(2,608
) (5,104 ) Net cash provided by operating
activities
8,819 3,208 Capital expenditures
(6,301 ) (1,239 ) Proceeds from sale of equipment
88 64 Net cash used in
investing activities
(6,213 ) (1,175 ) Net
change in borrowings under credit facility
(1,729 )
(55 ) Principal payments on long-term debt
(1,193 )
(1,352 ) Dividends paid
— (1,500 ) Other
(200
) (5 ) Net cash used in financing activities
(3,122 ) (2,912 ) Effect
of exchange rate
(15 ) 66
Net change in cash
$
(531
) $ (813 )
RECONCILIATION OF GAAP TO
NON-GAAP MEASURES (In thousands, except per share amounts)
(Unaudited)
13 Weeks Ended 13 Weeks
Ended 26 Weeks Ended 26 Weeks
Ended Jun 30, 2013 Jul 1, 2012 Jun 30,
2013 Jul 1, 2012 $ (4,710 )
$ (1,135 ) GAAP Net Loss
$ (6,760 ) $ (6,247 )
Adjustments:
6,898 5,773 Pension loss amortization
13,796 11,558
— — Pension settlement
— 983
193 1,490 Restructuring charges
819 2,612
(2,795 ) (2,865 ) Tax effect of adjustments (at
statutory tax rates)
(5,760 ) (5,978 )
1,912
564 Deferred tax valuation allowance
2,746 2,796
$ 1,498
$ 3,827 Non-GAAP Net Income
$
4,841 $ 5,724
$
(0.80 ) $ (0.19 ) GAAP Loss Per Share
$
(1.15 ) $ (1.07 ) Adjustments, net of tax:
0.71 0.60 Pension loss amortization
1.42 1.20
— — Pension settlement
— 0.10
0.02 0.15
Restructuring charges
0.08 0.27
0.32
0.10 Deferred tax valuation allowance
0.47
0.48
$ 0.25 $ 0.66
Non-GAAP Income Per Share
$ 0.82 $ 0.98
GAAP Net Cash Flow
$ (531 ) $
(813 ) Adjustments: Credit facility paid (borrowed)
1,729
55 Non-GAAP Net Cash Flow
$
1,198 $ (758 )
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