Third Quarter Highlights
- Acquired WorkflowOne in transaction
valued at $216.5 million
- Renewed and extended credit
facility
- Annual savings of $40 million expected
when integration is complete at end of 2015
- Pension accounting change to provide
greater transparency for investors; prior periods have been
restated
Standard Register (NYSE: SR) today announced its financial
results for the third quarter of 2013. The Company reported revenue
of $199.3 million and a net loss of $23.2 million or $3.92 per
diluted share. The results compare to third quarter 2012 revenue of
$145.7 million and net income of $2.5 million or $0.43 per diluted
share. Results for the third quarter and first three quarters of
2013 include two months of results from WorkflowOne, which Standard
Register acquired on August 1, 2013.
Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA), which excludes certain items as
detailed in the attached reconciliation, was $8.0 million compared
to $9.3 million for the third quarter of 2012.
“We continue to be challenged by revenue declines in certain
printed and transactional forms, however, we are encouraged by the
execution of key investments focused on growth solutions and
overall rapid pace of integrating WorkflowOne,” said Joseph P.
Morgan, Jr., president and chief executive officer. “The
acquisition has expanded both our customer base and portfolio of
solutions, and we are beginning to realize synergies, including
some initial cross-selling of each other’s capabilities. With
greater financial stability and flexibility, we are in a more
manageable position with our pension obligation and have more
resources for investment and executing our strategy. It is an
exciting transformational time for our company as we focus on the
evolving opportunities of applying workflow, content and analytics
to our customers’ communication needs.”
Third Quarter Results
Total revenue for the third quarter of 2013 was $199.3 million
compared to $145.7 million in the prior year quarter. Net loss for
the third quarter of 2013 was $23.2 million or $3.92 per diluted
share compared to net income of $2.5 million or $0.43 per diluted
share last year. The change in pension accounting had the effect of
adjusting net income for the third quarter of 2012 to $2.5 million
from a net loss of $2.6 million. The third quarter of 2013 includes
WorkflowOne revenue of $68.3 million and a net loss of $0.6
million, along with $18.5 million of acquisition, integration and
restructuring expenses.
Healthcare revenue was $62.9 million compared to $51.5 million
in the third quarter of 2012. Operating profit was $2.1 million
compared to $2.3 million in the prior year quarter.
Technology-enabled healthcare solutions were the primary drivers of
sales to new and existing customers, while volumes in clinical
documents continued to decline.
Business Solutions revenue was $136.5 million compared to $94.2
million in the third quarter last year. As previously reported,
reductions in revenue with a large financial services customer that
reorganized its distribution channels and restructured operations
are expected to total $18 to $20 million for the year. Revenue from
this customer declined $5.4 million during the third quarter. The
business unit posted an operating loss of $1.5 million compared to
operating profit of $2.3 million in the prior year third
quarter.
Gross margin as a percentage of revenue decreased to 26.9
percent from 28.8 percent for the same quarter last year. Gross
margin was affected by WorkflowOne transaction expenses, fair value
accounting treatment required for finished goods acquired in the
WorkflowOne transaction and the ramp-up of the new digital print
and distribution Center of Excellence in Jeffersonville, Indiana.
Pricing pressure, product mix and declines in volumes also
contributed to the decline in gross margin.
Selling, general and administrative (SG&A) expenses were
$54.4 million, including $18.9 million of SG&A of WorkflowOne,
compared to $37.7 million for the same quarter last year.
First Three Quarters Results
Total revenue was $477.8 million and the Company incurred a net
loss of $16.5 million or $2.79 per diluted share for the first
three quarters of 2013, compared to revenue of $458.4 million and
net income of $6.8 million or $1.16 per diluted share for the first
three quarters of 2012. The 2013 results include two months of
WorkflowOne. The change in pension accounting had the effect of
adjusting net income for the first three quarters of 2012 to $6.8
million from a net loss of $8.9 million.
Adjusted EBITDA, which excludes certain items as detailed in the
attached reconciliation, was $27.9 million compared to $31.3
million for the first three quarters of 2012.
Healthcare revenues were $160.6 million compared to $163.3
million in the first three quarters of 2012. Operating profit for
the first three quarters of 2013 was $6.0 million compared to $8.6
million for the prior year.
Business Solutions revenues were $317.2 million compared to
$295.1 million in the first three quarters of the prior year.
Operating profit was $2.3 million compared to $5.6 million for the
prior year.
Consolidated gross margin as a percent of revenue was 28.2
percent in the first three quarters of 2013 compared to 29.8
percent for the same period in 2012. SG&A expenses were $124.5
million, including $18.9 million of SG&A of WorkflowOne,
compared to $123.4 million in the prior year.
Cash flow on a net debt basis was negative by $6.6 million for
the first three quarters of 2013 compared to positive cash flow of
$4.0 million for the first three quarters of 2012.
Capital expenditures were $9.1 million compared to $2.4 million
in the first three quarters of last year. The Company continues to
invest in infrastructure at its digital and distribution Center of
Excellence in Jeffersonville, Indiana. Investments were also made
in software technology, workflow and digital manufacturing
capability.
The Company contributed $18.8 million to its qualified pension
plan in the first three quarters of 2013 compared to $18.7 million
in the first three quarters of 2012. Total pension contributions
for 2013 are expected to be $24.7 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.
Pension Accounting Change
The Company changed its method of accounting for its pension
plans to a more preferable method to recognize actuarial gains and
losses in the income statement in the year incurred rather than
amortizing them over time. Under the new method permitted under
Generally Accepted Accounting Principles (GAAP), certain asset
investment gains and losses and liability actuarial gains and
losses in excess of a recognition corridor (10 percent of the
greater of plan assets or benefit obligations) will be recognized
in the fourth quarter of each year. All historical financial
information has been retrospectively adjusted to reflect this
pension accounting change, increasing net income by $13.5 million
for the first two quarters of 2013 and $15.6 million for the first
three quarters of last year. The new method of accounting will
provide greater transparency and permit investors to more clearly
evaluate and compare the company’s operating performance. The
change has no impact on benefits to participants, the Company’s
pension liability or pension funding obligations.
Acquisition of WorkflowOne
On August 1, 2013, Standard Register announced that it acquired
WorkflowOne in a transaction valued at $216.5 million, financed by
assuming $210 million of long-term debt and the issuance of
warrants with an estimated value of $6.5 million. Standard Register
expects to achieve $40 million in annual savings when the
integration of the two companies is complete.
On September 26, 2013, the Company’s Board of Directors approved
a new strategic restructuring program in connection with the
acquisition of WorkflowOne and the integration of the two
companies. Total costs of the restructuring program, which is
expected to continue through the end of the calendar year 2015,
will be approximately $29.8 million. Except for $0.5 million of
inventory impairment, the balance of the restructuring charges will
be cash expenditures. The Company also expects to incur
approximately $8.5 million in integration costs in connection with
the acquisition.
Renewal and Expansion of Credit Facility
During the third quarter, Standard Register announced that it
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.
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 25, 2013, to
review the third quarter results. The call can be accessed via an
audio webcast accessible at
http://www.standardregister.com/investor.
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 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 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 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 non-GAAP adjusted earnings before interest, taxes,
depreciation and amortization (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, which excludes pension benefit
cost, restructuring and impairment charges, acquisition and
integration expense and certain fair value 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 calculations, although other
items are excluded.
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 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)
Third Quarter Y-T-D
13 Weeks Ended 13 Weeks Ended 39 Weeks Ended
39 Weeks Ended Sep 29, 2013 Sep 30,
2012 Sep 29, 2013 Sep 30, 2012
$ 199,339 $ 145,722
TOTAL REVENUE $
477,776 $ 458,438
145,687
103,690
COST OF SALES
343,149
321,611
53,652 42,032
GROSS
MARGIN 134,627 136,827
OPERATING EXPENSES
54,384 37,683 Selling, general and administrative
124,486 123,377
6,216 254 Acquisition and integration
costs
8,002
608
1,262 — Asset impairments
1,262 —
11,055
733 Restructuring and other exit costs
11,874 3,345
72,917
38,670
TOTAL OPERATING EXPENSES
145,624 127,330
(19,265
) 3,362
(LOSS) INCOME FROM OPERATIONS (10,997
) 9,497
OTHER INCOME (EXPENSE) (3,713
) (670 ) Interest expense
(4,867 ) (2,059 )
7 10 Other income
65
49
(3,706 ) (660 )
Total other
expense (4,802 ) (2,010 )
(22,971
) 2,702
(LOSS) INCOME BEFORE INCOME TAXES
(15,799 ) 7,487
252 202
Income tax expense
686 704
$ (23,223 ) $ 2,500
NET (LOSS) INCOME $ (16,485 ) $
6,783
5,931 5,846 Average Number of Shares
Outstanding - Basic
5,909 5,836
5,931 5,846 Average
Number of Shares Outstanding - Diluted
5,909 5,854
$ (3.92 ) $ 0.43
BASIC (LOSS) INCOME PER
SHARE $ (2.79 ) $ 1.16
$
(3.92 ) $ 0.43
DILUTED( LOSS) INCOME PER SHARE
$ (2.79 ) $ 1.16
$ — $ —
Dividends per share declared for the period
$ — $
0.25 MEMO:
$ 7,848 $ 4,896 Depreciation and
amortization
$ 17,852 $ 16,866
SEGMENT OPERATING RESULTS (In thousands) (Unaudited)
13
Weeks Ended 13 Weeks Ended 39 Weeks Ended 39
Weeks Ended Sep 29, 2013 Sep 30, 2012
Sep 29, 2013 Sep 30, 2012 REVENUE
$ 62,908 $ 51,535 Healthcare
$ 160,579
$ 163,348
136,431 94,187 Business
Solutions
317,197 295,090
$
199,339 $ 145,722 Total Revenue
$ 477,776 $ 458,438
NET (LOSS) INCOME BEFORE TAXES $ 2,063 $ 2,222
Healthcare
$ 5,968 $ 8,564
(1,452 )
2,365 Business Solutions
2,376 5,650
(23,582 )
(1,885 ) Unallocated
(44,795 ) (6,727 )
$ (22,971 ) $ 2,702 Total Net
(Loss) Income Before Taxes
$ (15,799 )
$ 7,487
CONSOLIDATED BALANCE
SHEETS (In thousands) (Unaudited)
Sep 29, 2013
Dec 30, 2012 ASSETS Cash and cash equivalents
$ 2,804 $ 1,012 Accounts receivable
155,019
104,513 Inventories
65,995 44,281 Other current assets
16,940 9,248 Total current assets
240,758 159,054 Plant and equipment
94,765
58,923 Goodwill and intangible assets
140,661 13,389
Deferred taxes
22,765 22,765 Other assets
8,718
5,773 Total assets
$ 507,667
$ 259,904
LIABILITIES AND
SHAREHOLDERS' DEFICIT Current liabilities
$
135,952 $ 74,832 Deferred compensation
3,068 3,498
Long-term debt
266,048 49,159 Pension benefit liability
230,575 252,665 Other long-term liabilities
7,256
6,610 Shareholders' deficit
(135,232 )
(126,860 ) Total liabilities and shareholders' deficit
$
507,667 $ 259,904
CONSOLIDATED STATEMENTS OF CASHFLOWS (In thousands)
(Unaudited)
Y-T-D 39 Weeks Ended 39 Weeks
Ended Sep 29, 2013 Sep 30, 2012 Net
loss plus non-cash items
$ 15,914 $ 30,591 Working
capital
15,427 10,541 Restructuring payments
(3,982
) (7,550 ) Contributions to qualified pension plan
(18,766 ) (18,703 ) Other
(3,323 )
(4,727 ) Net cash provided by operating activities
5,270 10,152 Acquisition cash acquired
1,665 —
Additions to plant and equipment
(9,065 ) (2,441 )
Proceeds from sale of equipment
171 104
Net cash used in investing activities
(7,229 ) (2,337
) Net change in borrowings under credit facility
8,371 (4,364 ) Debt issuance costs
(2,357 ) —
Principal payments on long-term debt
(1,840 ) (1,914
) Dividends paid
— (1,500 ) Other
(398 )
(613 ) Net cash provided by (used in) financing activities
3,776 (8,391 ) Effect of exchange rate
(25 ) 182 Net change in cash
$
1,792 $ (394 )
RECONCILIATION OF GAAP TO NON-GAAP MEASURES (In
thousands) (Unaudited)
13 Weeks Ended 13 Weeks Ended
39 Weeks Ended 39 Weeks Ended Sep 29, 2013
Sep 30, 2012 Sep 29, 2013 Sep 30,
2012 $ (23,223 ) $ 2,500 GAAP Net (Loss)
Income
$ (16,485 ) $ 6,783 Adjustments:
252 202 Income taxes
686 704
3,713 670
Interest
4,867 2,059
7,848 4,896
Depreciation and amortization
17,852 16,866
$ (11,410 ) $ 8,268
EBITDA
$ 6,920 $ 26,412
Adjustments:
12,317 733 Restructuring and impairment
13,136 3,345
6,216 254 Acquisition and integration
costs
8,002 608
(506 ) 60 Pension expense
(benefit)
(1,519 ) 890
1,392 —
Fair value adjustments
1,392 —
$ 8,009 $ 9,315 Adjusted EBITDA
$ 27,931 $ 31,255 GAAP
Net Cash Flow
$ 1,792 $ (394 ) Adjustments: Credit
facility paid (borrowed)
(8,371 ) 4,364
Non-GAAP Net Cash Flow
$ (6,579 ) $
3,970
Standard RegisterInvestor and media contact:Carol Merry,
614-383-1624carol.merry@fahlgren.comwww.standardregister.com
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