UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: February 24, 2012
(Date of earliest event reported)
THE STANDARD REGISTER COMPANY
(Exact name of Registrant as specified in its Charter)
Ohio (State or other jurisdiction of incorporation) | 1-1097 (Commission File No.) | 31-0455440 (IRS Employer Identification Number) |
600 Albany Street, Dayton, Ohio | 45417 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (937) 221-1000
N/A
(Former name or former address, if changed since last report)
Item 2.02 Results of Operations and Financial Condition
The information in this Item 2.02 (including the exhibit referenced below) is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
On February 24, 2012, the Company issued an earnings release announcing its financial results for the fourth quarter and full year 2011. A copy of the earnings press release is attached as Exhibit 99.1 and is furnished under this Item 2.02.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensation Arrangements of Certain Officers
On February 23, 2012, the Board of Directors of the Company approved an amendment to its Supplemental Executive Retirement Plan which generally provides for additional retirement income for qualifying officers of the Company, including its principal executive and financial officers and other named executive officers. The amendment, among other things, changed the vesting period for participants from ten years of credited officer service to ten years credited Company service. In addition, the annual contributions to participants under the Plan were suspended and the annual investment return was changed from 6% annually to a rate based on the applicable federal long-term rate. A copy of the amendment is attached as Exhibit 10.1.
Also attached as exhibits are revised forms of Restricted Stock Grant Agreement (Exhibit 10.2) and Performance Restricted Stock Grant Agreement (Exhibit 10.3) for use under The Standard Register Company 2011 Equity Incentive Plan.
Item 9.01 Financial Statements and Exhibits.
(c) Exhibits
Exhibit No.
Description
10.1
Second Amendment to The Standard Register Company Supplemental Executive Retirement Plan
10.2
Form of Restricted Stock Grant Agreement under The Standard Register Company 2011 Equity Incentive Plan
10.3
Form of Performance Restricted Stock Grant Agreement under The Standard Register Company 2011 Equity Incentive Plan
99.1
Press Release dated February 24, 2012
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
REGISTRANT | THE STANDARD REGISTER COMPANY |
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Date: February 24, 2012 | By: /s/Gerard D. Sowar |
| Gerard D. Sowar, Vice President, General Counsel and Secretary |
SECOND AMENDMENT TO
THE STANDARD REGISTER COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Second Amendment to The Standard Register Company Supplemental Executive Retirement Plan (the “Plan”) shall be effective as of January 1, 2012.
WHEREAS, the Plan provides that it may be amended by the Board of Directors (the "Board") of The Standard Register Company (the “Company”); and
WHEREAS, the Board has determined it advisable to amend the Plan:
NOW THEREFORE, effective as of January 1, 2012, the Plan is amended as follows:
1.
The definition of “Credited Service” which appears in Section 2.12 of the Plan shall be amended in its entirety to read as follows:
2.12
Credited Service
“Credited Service” means the sum of all periods of a Participant’s service with the Company or a Selected Affiliate, and such additional Credited Service, if any, as is credited by the Committee in accordance with Section 8.5.
2.
The definition of “Investment Return Rate” which appears in Section 2.16 of the Plan shall be amended in its entirety to read as follows:
2.16
Investment Return Rate
“Investment Return Rate” means the rate, compounded annually, as determined by the Committee from time to time. Any change in the Investment Return Rate will apply prospectively to a Participant’s Account as of the effective date of the change.
3.
Article IV of the Plan shall be amended by restating Section 4.1 in its entirety to read as follows:
4.1
Amount of Allocation
Subject to Section 3.2, with respect to each Plan Year, a Participant’s Account shall be credited with an amount or percentage of Compensation as determined from time to time by the Committee. Provided, however, that, unless otherwise specified by the Committee, the amount of the annual allocation determined by the Committee under this Section with respect to a
1
Participant shall remain in effect for subsequent Plan Years until the Participant’s termination of service or until the amount of such allocation is changed by action of the Committee.
4.
In all other respects, the Plan shall remain unchanged.
By executing this Amendment on this _______ day of __________________, 2012, the undersigned hereby certifies that this Amendment has been authorized and approved by the Board of Directors of The Standard Register Company.
THE STANDARD REGISTER COMPANY
By: ________________________________
Title: _______________________________
2
RESTRICTED STOCK GRANT AGREEMENT
THIS AGREEMENT is made and entered into by and between THE STANDARD REGISTER COMPANY, an Ohio corporation (the “Company”) and ________________ (“Grantee”).
Background:
The Company considers it desirable and in its best interest to provide Grantee with an added incentive to advance the interests of the Company through a grant of restricted stock of the Company, in accordance with the terms and conditions provided for herein and in The Standard Register Company 2011 Equity Incentive Plan (“Plan”).
NOW, THEREFORE, in consideration of the premises and of the mutual promises herein contained, the parties hereto agree as follows:
1.
Restricted Stock Award.
(a)
Award. Subject to the terms and conditions set forth herein and in the Plan, the Company hereby awards to Grantee shares of the Company’s Common Stock (the “Restricted Stock”) as follows:
Number of Shares:
______________ shares
Award Date:
______________
Stock Price as of Award Date: $___________
The certificate (or certificates), or book entry issued in respect of the shares of Restricted Stock shall be registered in the name of Grantee and shall be held by the Company subject to the terms of this Agreement. On and after the Award Date, Grantee will be considered a shareholder with respect to all of the shares of Restricted Stock, including the right to vote such shares provided, however, that all dividends declared by the Company which would otherwise be payable with respect to outstanding shares of Restricted Stock that are ultimately earned shall be retained by the Company, which shall be paid to the Grantee when and as the Restricted Stock becomes vested, or shall be forfeited when and as Restricted Stock is forfeited. If, as a result of any future adjustments to the shares of the Company’s stock, such as a stock split, Grantee, as owner of the shares of Restricted Stock, becomes entitled to new, additional or different shares of stock or securities, then any such new, additional or different shares or securities shall be subject to the same rights and restrictions as this award of shares of Restricted Stock.
2.
Vesting of Restricted Stock.
(a)
Vesting Schedule. Grantee’s interest in the Restricted Stock shall vest in one lump sum on March 1, 2015.
In the event Grantee’s employment with the Company is terminated prior to an Anniversary Date, the entire number of unvested shares of Restricted Stock granted to Grantee pursuant to this Agreement shall be immediately forfeited and canceled as of his date of termination without any payment therefore; provided, however, that if Grantee leaves the Company as a result of retirement in accordance with the Company’s normal retirement policy after age 62, or due to death or permanent and total disability, then all shares of Restricted Stock received by Grantee pursuant to this Agreement shall be immediately vested.
3.
Change in Control. In the event of a change in control of the Company, as described in the Plan, the Restricted Stock granted to Grantee pursuant to this Agreement shall be vested in accordance with the Plan.
4.
Restrictions on Restricted Stock. The Restricted Stock shall be subject to the following restrictions:
(a)
Nontransferable. Grantee shall not have the right to sell, transfer, assign, pledge, encumber, or otherwise convey his interest in the shares of Restricted Stock (whether or not such interest is nonforfeitable). Any attempt to transfer or assign the shares of Restricted Stock in violation of this transfer restriction shall not be recognized by the Company and shall be null and void. Following any Anniversary Date, Grantee may only trade or dispose of the vested Common Stock pursuant to a Registration Statement as may be required by the Securities Act of 1933 or other applicable state and federal law or pursuant to an opinion of the Company’s counsel that an exemption from registration is available and no Registration Statement is necessary.
(b)
Securities Act of 1933. The Restricted Stock will constitute restricted securities within the meaning of the Securities Act of 1933, and as such will be subject to restrictions and limitations on transferability, with which Grantee is familiar and to which he agrees.
(c)
Restrictive Legend. The share certificate(s) or book entry representing the shares of Restricted Stock shall have endorsed thereon a legend reflecting the restrictions of this Agreement and such certificate(s) or book entry shall be held by the Company until they become nonforfeitable, at which time they shall be transferred to Grantee.
5.
Miscellaneous.
(a)
Tax. Grantee shall be responsible for all federal, state and local income taxes payable with respect to this award of Restricted Stock. Grantee shall have the right to make such elections under the tax laws as are available in connection with this award of Restricted Stock. The Company and Grantee agree to report the value of the Restricted Stock in a consistent manner for federal income tax purposes. The Company shall have the right to retain and withhold from any payment of Restricted Stock the amount of taxes required to be withheld with respect to such payment. In its discretion, the Company may require Grantee to reimburse the Company for any such taxes required to be withheld and may withhold any distribution in whole or in part until the Company is so reimbursed. In lieu thereof, the Company shall have the right
to withhold from any other cash amounts due to Grantee an amount equal to the taxes required to be withheld or withhold and cancel (in whole or in part) a number of shares of Restricted Stock having a market value not less than the amount of such taxes, and Grantee consents to such withholding.
(b)
Securities. Grantee represents and warrants that he is acquiring the shares of Restricted Stock for investment purposes only, and not with a view to distribution thereof. Grantee is aware that the shares of Restricted Stock may not be registered under the federal or any state securities laws and that, in addition to the other restrictions on the shares, they may not be able to be transferred unless an exemption from registration is available. By making this award of Restricted Stock, the Company is not undertaking any obligation to register the shares of Restricted Stock under any federal or state securities laws.
(c)
Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, Grantee and his executors, representatives and assigns, and the Company and its successors and assigns.
(d)
Entire Agreement. It is expressly agreed by and between the parties hereto as a material consideration for the execution of this Agreement that there are and were no verbal or written representations, understandings, stipulations, agreements or promises pertaining to the subject matter of this Agreement not incorporated in writing in this Agreement and the Plan. This Agreement nor any of the provisions herein contained can be modified, terminated, superseded, waived or extended except by an appropriate written instrument executed by the parties hereto.
(e)
Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio.
(f)
Severability. Each Paragraph and Subparagraph of this Agreement shall be deemed severable and if for any reason any Paragraph or Subparagraph hereof is invalid or contrary to any existing or future law, such invalidity shall not affect the applicability or validity of any such other provision of this Agreement.
(g)
No Assurances. This Agreement and the award of Restricted Stock shall not be construed as giving to Grantee the right to be retained as an employee of the Company.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
THE STANDARD REGISTER COMPANY
By: _________________________________
Joseph P. Morgan, Jr.
Chief Executive Officer
GRANTEE
_____________________________________
PERFORMANCE RESTRICTED STOCK GRANT AGREEMENT
THIS AGREEMENT is made and entered into by and between THE STANDARD REGISTER COMPANY, an Ohio corporation (the “Company”), and ____________ (“Grantee”) on _____________, 20__.
Background:
The Company considers it desirable and in its best interest to provide Grantee with an added incentive to advance the interests of the Company through a grant of restricted stock of the Company, in accordance with the terms and conditions provided for herein and in The Standard Register Company 2011 Equity Incentive Plan, as amended (“Plan”).
NOW, THEREFORE, in consideration of the premises and of the mutual promises herein contained, the parties hereto agree as follows:
1. Restricted Stock Award.
(a)
Award. Subject to the terms and conditions set forth herein and in the Plan, the Company hereby awards to Grantee shares of the Company’s Common Stock (the “Restricted Stock”) as follows:
Number of Shares:
___________ (“Target Award”)
Award Date:
___________
Stock Price as of Award Date:
___________
(i)
The certificate (or certificates) or book entry issued in respect of the shares of Restricted Stock shall be registered in the name of Grantee and shall be held by the Company subject to the terms of this Agreement. On and after the Award Date, Grantee will be considered a shareholder with respect to all of the shares of Restricted Stock; provided, however, that shareholder shall not have the right to vote the shares until they are earned and all dividends declared by the Company which would otherwise be payable with respect to outstanding shares of Restricted Stock that are ultimately earned shall be retained by the Company, sequestered in a separate account established for such purpose which shall be paid to the Grantee when and as the Restricted Stock becomes vested, or shall be forfeited when and as Restricted Stock is forfeited. If, as a result of any future adjustments to the shares of the Company’s stock, such as a stock split, Grantee, as owner of the shares of Restricted Stock, becomes entitled to new, additional or different shares of stock or securities, then any such new, additional or different shares or securities shall be subject to the same rights and restrictions as this award of shares of Restricted Stock.
2.
Vesting of Restricted Stock.
(a)
Vesting Provision. Grantee’s interest in the Restricted Stock shall vest in accordance with performance achievement, and certain holding periods as follows, and as adopted by the Company’s Compensation Committee of the Board of Directors:
(i)
Fifty percent (50%) of the total Target Award (the “2012 Target Award”) will be subject to earning if the target performance goal is achieved for 2012. The target performance goal for this initial earning is the achievement in the year 2012 of pre-bonus, pre-LTI expense earnings before interest, taxes, depreciation, amortization, restructuring, and pension amortization and settlement equal to $ ________ (“2012 Performance Goal”). Fifty percent (50%) of the total Target Award (the “2013 Target Award”) will be earned if the target performance goal is achieved for 2013. The target performance goal for the earning for 2013 is the achievement for years 2012 and 2013 of pre-bonus, pre-LTI expense cumulative earnings before interest, taxes, depreciation, amortization, restructuring, and pension amortization and settlement equal to $ ________ (“2013 Performance Goal”). A portion of the 2012 Target Award and a portion of the 2013 Target Award shall be earned upon achievement of more than threshold performance, and a greater number of shares can be earned upon achievement of over-target performance, up to a maximum of One Hundred Fifty per cent (150%) of the Target Award. The portion of the 2012 Target Awards and 2013 Target Awards that will be earned in the event of achievement of between threshold and target performance will be determined on a prorated basis, with no shares being earned at threshold and one-hundred percent (100%) of the shares being earned at target.
(ii)
For 2012, upon achievement of more than the threshold 2012 Performance Goal, fifty per cent (50%) of the earned Restricted Stock will vest following public announcement of the Company’s earnings with respect to the 2012 fiscal year end financial statements, and the approval of the Compensation Committee and fifty per cent (50%) of the earned Restricted Stock will vest on the first anniversary of such announcement.
(iii)
For 2013, upon achievement of more than the threshold 2013 Performance Goal, one hundred per cent (100%) of the earned Restricted Stock will vest on the first anniversary of the public announcement of the Company’s earnings with respect to the 2013 fiscal year end financial statements, and the approval of the Compensation Committee.
(iv)
In the event the minimum threshold 2012 Performance Goal is not exceeded by fiscal year-end 2012, then all of the 2012 Target Award shall be cancelled. The Compensation Committee or the Section 162(m)
Subcommittee, as the case may be, shall have the sole authority to determine, in its sole but reasonable discretion, whether the 2012 Performance Goal has or has not been achieved.
(v)
In the event the minimum threshold 2013 Performance Goal is not exceeded by fiscal year-end 2013, then all of the 2013 Target Award shall be cancelled. The Compensation Committee or the Section 162(m) Subcommittee, as the case may be, shall have the sole authority to determine, in its sole but reasonable discretion, whether the 2012 Performance Goal has or has not been achieved.
(vi)
In the event Grantee’s employment with the Company is terminated prior to any vesting date, the unvested shares of Restricted Stock granted to Grantee pursuant to this Agreement shall be immediately forfeited and canceled as of his date of termination without any payment therefore; provided, however, that (i) if Grantee leaves the Company as a result of retirement in accordance with the Company’s normal retirement policy, after age 62 with ten years of service, or due to death or permanent and total disability, then all shares of Restricted Stock received by Grantee pursuant to this Agreement that have been earned as of such date shall be immediately vested, (ii) if prior to the end of fiscal year 2012, Grantee leaves the Company as a result of retirement in accordance with the Company’s normal retirement policy, after age 62 with ten years of service, or due to death or permanent and total disability then a pro-rated number of shares of the 2012 Target Award received by Grantee pursuant to this Agreement shall continue to be subject to the performance vesting provision, and (iii) if after the end of fiscal year 2012 but prior to the end of fiscal year 2013, Grantee leaves the Company as a result of retirement in accordance with the Company’s normal retirement policy, after age 62 with ten years of service, or due to death or permanent and total disability, then a pro-rated number of shares of the 2013 Target Award received by Grantee pursuant to this Agreement shall continue to be subject to the performance vesting provision.
(vii)
In the event of a change in control of the Company, as described in the Plan, the Restricted Stock granted to Grantee pursuant to this Agreement shall vest in accordance with the terms and conditions contained in the Plan.
3.
Restrictions on Restricted Stock. The Restricted Stock shall be subject to the following restrictions:
(a)
Nontransferable. Grantee shall not have the right to sell, transfer, assign, pledge, encumber, or otherwise convey his interest in the shares of Restricted Stock (whether or not such interest is nonforfeitable). Any attempt to transfer or assign the shares of Restricted Stock in violation of this transfer restriction shall not be recognized by the Company and shall be null and void. Following any vesting, Grantee may only trade or dispose of the vested Common Stock pursuant to a Registration Statement as may be required by the Securities Act of 1933 or other
applicable state and federal law or pursuant to an opinion of the Company’s counsel that an exemption from registration is available and no Registration Statement is necessary.
(b)
Securities Act of 1933. The Restricted Stock will constitute restricted securities within the meaning of the Securities Act of 1933, and as such will be subject to restrictions and limitations on transferability, with which Grantee is familiar and to which he agrees.
(c)
Restrictive Legend. The share certificate(s) or book entry representing the shares of Restricted Stock shall have endorsed thereon a legend reflecting the restrictions of this Agreement and such certificate(s) or book entry shall be held by the Company until they become nonforfeitable, at which time they shall be transferred to Grantee.
4.
Miscellaneous.
(a)
Tax. Grantee shall be responsible for all federal, state and local income taxes payable with respect to this award of Restricted Stock. Grantee shall have the right to make such elections under the tax laws as are available in connection with this award of Restricted Stock. The Company and Grantee agree to report the value of the Restricted Stock in a consistent manner for federal income tax purposes. The Company shall have the right to retain and withhold from any payment of Restricted Stock the amount of taxes required to be withheld with respect to such payment. In its discretion, the Company may require Grantee to reimburse the Company for any such taxes required to be withheld and may withhold any distribution in whole or in part until the Company is so reimbursed. In lieu thereof, the Company shall have the right to withhold from any other cash amounts due to Grantee an amount equal to the taxes required to be withheld or withhold and cancel (in whole or in part) a number of shares of Restricted Stock having a market value not less than the amount of such taxes, and Grantee consents to such withholding.
(b)
Securities. Grantee represents and warrants that he is acquiring the shares of Restricted Stock for investment purposes only, and not with a view to distribution thereof. Grantee is aware that the shares of Restricted Stock may not be registered under the federal or any state securities laws and that, in addition to the other restrictions on the shares, they may not be able to be transferred unless an exemption from registration is available. By making this award of Restricted Stock, the Company is not undertaking any obligation to register the shares of Restricted Stock under any federal or state securities laws.
(c)
Binding Effect. This Agreement shall be binding upon, and inure to the benefit of, Grantee and his executors, representatives and assigns, and the Company and its successors and assigns.
(d)
Entire Agreement. It is expressly agreed by and between the parties hereto as a material consideration for the execution of this Agreement that there are and were no verbal or written representations, understandings, stipulations, agreements or promises pertaining to the subject matter of this Agreement not incorporated in writing in this Agreement and the Plan. This Agreement nor any of the provisions herein contained can be modified, terminated, superseded, waived or extended except by an appropriate written instrument executed by the parties hereto.
(e)
Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio.
(f)
Severability. Each Paragraph and Subparagraph of this Agreement shall be deemed severable and if for any reason any Paragraph or Subparagraph hereof is invalid or contrary to any existing or future law, such invalidity shall not affect the applicability or validity of any such other provision of this Agreement.
(g)
No Assurances. This Agreement and the award of Restricted Stock shall not be construed as giving to Grantee the right to be retained as an employee of the Company.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
THE STANDARD REGISTER COMPANY
__________________________________
Joseph P. Morgan, Jr.
Chief Executive Officer
GRANTEE
___________________________________
Standard Register®
ADVANCING YOUR REPUTATION
600 Albany St. · Dayton, OH 45417
Investor and media contact:
937.221.1000 · 937.221.1205 (fax)
Shaun C. Smith · 937.221.1504
www.standardregister.com
shaun.smith@standardregister.com
For Release on February 24, 2012 at 8:00 a.m. EST
Standard Register Reports Fourth Quarter and Full Year 2011 Financial Results
DAYTON, Ohio (February 24, 2012) – Standard Register (NYSE: SR) today announced its financial results for the fourth quarter and full year 2011. The Company reported revenue of $161.4 million and a net loss of $95.5 million, or $3.28 per diluted share for the fourth quarter of 2011. The results compare to prior year fourth quarter revenue of $172.7 million and a net profit of $1.5 million, or $0.05 per diluted share. Non-GAAP net income, adjusted for pension loss amortization, restructuring charges and the deferred tax allowance, was $0.9 million, or $0.03 per diluted share, for the fourth quarter of 2011 as compared to $4.9 million, or $0.18 per diluted share, for the same period in 2010.
For the full year 2011, the Company reported revenue of $648.1 million and a net loss of $87.7 million, or $3.02 per diluted share. The annual results compare to prior year revenue of $668.4 million and a net profit of $0.4 million, or $0.01 per diluted share. Non-GAAP net income, adjusted for pension loss amortization and settlement, restructuring charges, the deferred tax valuation allowance, and post-retirement termination benefits, was $7.7 million for the full year, or $0.26 per diluted share as compared to $13.2 million, or $0.46 per diluted share, in 2010.
“We faced a number of challenges in 2011 as we continue to manage our transition to a core solutions business. We are not satisfied with our 2011 results, but we have taken aggressive steps to accelerate our transition and properly align our resources to capitalize on the opportunities we see across our platform,” said Joseph P. Morgan, Jr., president and chief executive officer.
Morgan continued, “Our transition to market-facing business units, together with the investments we have made to enhance our digital print capabilities, healthcare software and services offering and innovative delivery and security systems, have enabled us to provide solutions that align brand communications with our customers’ corporate priorities and standards and create growth opportunities.”
Fourth Quarter Results
Total revenues declined 7 percent to $161.4 million in the fourth quarter versus $172.7 million in the prior year. Core solution revenues were flat during the quarter including the loss of a single Healthcare customer whose fourth quarter seasonal project did not repeat in 2011. Excluding the effect of the customer loss, core solutions generated revenue growth. Legacy products, such as business forms and transactional labels, across all business units continued to decline.
Healthcare revenue declined 11 percent to $59.3 million in the fourth quarter compared to $66.3 million in the prior year. Core solutions, excluding the impact of the loss of the seasonal customer noted previously, showed improved growth driven by the acquisition of 100 percent of the ownership interests in iMedConsent, LLC (dba Dialog Medical) which the Company completed in the third quarter as well as organic growth in patient communications and patient identification and safety solutions. Legacy clinical documents and administrative forms sales declined at an accelerated rate as customers advanced implementation of Electronic Medical Records (EMR) initiatives.
Financial Services grew 2 percent to $44.7 million in the fourth quarter compared to $43.9 million in the prior year as the Company completed the implementation of a new core solutions customer as well as the continued ramp up of several customers implemented in previous periods. These sales served to offset the loss of legacy and core solutions from a customer that is expected to impact revenues in this segment by an additional $15-18 million in the coming year. The Commercial Markets business unit experienced an 11 percent decline to $39.7 million for the quarter from $44.7 million in the prior year due to erosion in both legacy and core solutions.
The Industrial business unit generated $17.7 million in revenue for the quarter, roughly in line with its results for the fourth quarter of 2010. Overall softness in manufacturing parts solutions related to slowed growth among HVAC/R, electrical distribution and home appliance manufacturers and a reduction in transactional documents during the quarter were the key drivers of performance.
Gross margin as a percent of revenue decreased to 29.6 percent for the current year quarter from 32.0 percent in the prior year quarter. Fixed cost absorption challenges due to unit declines, material cost increases, particularly in pressure sensitive labels, and pricing pressures all contributed to the change. Selling, general and administrative expenses, excluding pension loss amortization, declined $0.8 million to $45.2 million, or 28.0 percent of revenue, relative to $46.0 million and 26.6 percent for the prior year quarter.
Full Year Results
Total revenues declined 3 percent for the full year versus 2010. As with the quarter, declines in legacy products outpaced the growth that was experienced from core solutions. However, as the year advanced the mix changed from 63 percent legacy and 37 percent core for 2010 to 60 percent legacy and 40 percent core for 2011 signaling a subtle shift in the portfolio composition.
Healthcare revenues declined 6 percent to $236.8 million from $251.0 million in the prior year mainly due to administrative and clinical documents that are largely being phased out as part of the EMR initiatives. The
acquisition of Dialog Medical improved our software and services offering and contributed $2.2 million in revenue during the second half of 2011. In spite of the customer loss incurred during the fourth quarter, core solutions grew organically during the year.
Revenues in the Financial Services unit declined less than 1 percent for the year to $174.2 million from $175.7 million in 2010 reflecting a still heavy concentration in declining legacy transactional products. Implementation of new customers and expansion in marketing and critical communication solutions largely offset these declines. Commercial Markets revenues were $159.4 million for the year, a 7 percent decline from $170.6 million in 2010. The upgrade of our digital print network was very evident in this segment as we posted solid growth for the year. However, softness in core solutions sales as well as decreases in areas such as transaction labels created an overall decline for the segment.
Industrial revenues grew 9 percent to $77.8 million from $71.1 million in 2010 reflecting a strong first half within our customer base followed by a weaker second half. In-mold labeling solutions continued to make progress in increasing the pipeline of opportunities as well as booked revenues. Our Mexico operation also made progress with 24 percent revenue growth over the prior year and reporting profit for the current year.
Gross margin as a percent of revenue declined to 30.6 percent in the current year from 31.4 percent during the prior year. Selling, general and administrative expenses, excluding pension loss amortization, declined $3.6 million for the full year to $182.4 million, or 28.1 percent of revenue as compared to $185.9 million and 27.8 percent of revenue in the prior year.
For 2011, capital expenditures were $21.5 million the majority of which supported the advancement of the Company’s core growth solutions. These expenditures consisted of $14.2 million in cash and $7.3 million in capital leases. In addition, the Company acquired 100 percent of the ownership interests of iMedConsent, LLC for $4.9 million in cash. Related to this acquisition a $0.7 million note payable will be paid over two years and, up to an additional $2.0 million in contingent payments will be made based upon the performance of the business through the two-year anniversary of the transaction. Pension funding contributions were $25.0 million for 2011. Non-GAAP cash on a net debt basis was negative $11.6 million for the year.
For 2012, the Company is planning to spend $9-11 million in capital expenditures to further support its core solutions offering and is planning to contribute at least the minimum requirement of $27 million for Pension funding.
Strategic Restructuring Program
On January 23, 2012, the Company announced a strategic restructuring program to better align resources in support of its growing core solutions business and to reduce costs to offset the impact of declining revenue in its legacy operations. The restructuring is expected to result in an estimated $45 million in annual savings and the elimination of 12 percent to 15 percent of its workforce over the next 6 to 9 months. Costs associated with the restructuring program reduced fourth quarter 2011 earnings by $5.5 million pre-tax, or $0.11 per diluted share. The balance of the costs will reduce 2012 earnings by approximately $1.5 million pre-tax, or $0.03 per diluted share.
Deferred Tax Valuation Allowance, Pension Valuation and Postretirement Healthcare Plan Termination
During the fourth quarter the Company recorded a non-cash charge to tax expense of $89.5 million to establish a valuation allowance against certain deferred tax assets, which reduced earnings per diluted share by $3.08. The action is necessary under accounting standards that require recording a valuation allowance when it is more likely than not that a portion of the asset will not be realized. The valuation allowance will be maintained until sufficient evidence exists to support its reversal.
Additionally, the Company recorded a non-cash actuarial loss of $80.5 million to other comprehensive income within equity as a result of actual pension asset performance as compared to actuarial assumptions and liability increases caused by continued declines in the discount rate. The recording of this loss has no impact on 2011 earnings and pension amortization for 2012 is expected at $5.8 million per quarter or $23.0 million for the full year.
During the third quarter, Standard Register terminated its postretirement healthcare plan effective December 31, 2011. The elimination of these benefits triggered a one-time favorable $20.2 million pre-tax impact to earnings due to the elimination of $5.1 million of accumulated postretirement benefit obligations recorded as a long-term liability on the balance sheet and a net credit of $15.1 million for the immediate recognition of previously unrecognized prior service credits and actuarial losses that resided in accumulated other comprehensive income and deferred tax liabilities. Going forward, the Company will no longer amortize the unrecognized prior service credits and actuarial losses that have been favorably impacting pre-tax earnings by $1.0 million per quarter or $4.0 million annually.
Change in Inventory Accounting Method
In the fourth quarter of 2011, the Company changed its method of accounting for inventory from using a combination of the LIFO method and the FIFO method to using the FIFO method for all of its inventories. The Company believes the new method of accounting for inventory is preferable because the FIFO method better reflects the current value of inventories, is used by key users of financial statements including the Company’s lenders which use FIFO to value the collateral and to calculate its borrowing capacity and compliance with debt covenants, enhances comparability with industry peers, and provides consistency across all of operations regarding the method of accounting used for financial reporting. All prior periods presented have been adjusted to apply the new method of accounting.
Dividend
On January 23, 2012 Standard Register announced the suspension of its quarterly dividend as required by Ohio law, which calls for cash dividends to be paid only out of a corporation’s statutory surplus. Because of the decline in book equity related to additional fourth quarter actuarial losses in the Company’s pension plan and the valuation allowance established against deferred tax assets, there is not currently a statutory surplus. The suspension of the dividend results in the annual retention of approximately $6 million of capital by the Company. The $0.05 per share dividend which was declared on December 8, 2011 for shareholders on record as of February 24, 2012 will be paid on March 9, 2012.
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. EST on February 24, 2012, to review the fourth quarter results. The call can be accessed via an audio web cast 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 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 report includes 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 for fiscal year 2012 and beyond could differ materially from the Company’s current expectations. Forward-looking statements are identified by words such as “anticipates,” “projects,” “expects,” “plans,” “intends,” “believes,” “estimates,” “targets,” and other similar expressions that indicate trends and future events.
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 including the ability to attract and retain customers, results of continuous improvement and other cost-containment strategies, and the Company’s success in attracting and retaining key personnel. 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.
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 net income and earnings per diluted 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, asset impairments, postretirement termination benefits 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.
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) |
|
|
|
Fourth Quarter |
|
|
| Y-T-D |
| |
13 Weeks Ended | 13 Weeks Ended |
| 52 Weeks Ended | 52 Weeks Ended | ||
1-Jan-12 | 2-Jan-11 |
|
|
| 1-Jan-12 | 2-Jan-11 |
$ 161,392 | $ 172,684 |
| TOTAL REVENUE |
| $ 648,109 | $ 668,377 |
|
|
|
|
|
|
|
113,589 | 117,420 |
| COST OF SALES |
| 449,940 | 458,569 |
|
|
|
|
|
|
|
47,803 | 55,264 |
| GROSS MARGIN |
| 198,169 | 209,808 |
|
|
|
|
|
|
|
|
|
| COSTS AND EXPENSES |
|
|
|
51,252 | 50,684 |
| Selling, general and administrative |
| 206,656 | 204,613 |
67 | 370 |
| Pension settlement and postretirement plan amendment | (19,719) | 370 | |
134 | - |
| Environmental remediation |
| 203 | (803) |
5,263 | 243 |
| Restructuring and other exit costs |
| 5,198 | 1,733 |
|
|
|
|
|
|
|
56,716 | 51,297 |
| TOTAL COSTS AND EXPENSES |
| 192,338 | 205,913 |
|
|
|
|
|
|
|
(8,913) | 3,967 |
| (LOSS) INCOME FROM OPERATIONS | 5,831 | 3,895 | |
|
|
|
|
|
|
|
|
|
| OTHER INCOME (EXPENSE) |
|
|
|
(692) | (572) |
| Interest expense |
| (2,466) | (2,189) |
74 | (536) |
| Other income |
| 632 | (333) |
(618) | (1,108) |
| Total other expense |
| (1,834) | (2,522) |
|
|
|
|
|
|
|
(9,531) | 2,859 |
| (LOSS) INCOME BEFORE INCOME TAXES | 3,997 | 1,373 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,953 | 1,405 |
| Income Tax Expense |
| 91,695 | 1,005 |
|
|
|
|
|
|
|
$ (95,484) | $ 1,454 |
| NET (LOSS) INCOME |
| $ (87,698) | $ 368 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,094 | 28,948 |
| Average Number of Shares Outstanding - Basic | 29,049 | 28,917 | |
29,094 | 28,955 |
| Average Number of Shares Outstanding - Diluted | 29,049 | 28,944 | |
|
|
|
|
|
|
|
$ (3.28) | $ 0.05 |
| BASIC AND DILUTED (LOSS) INCOME PER SHARE | $ (3.02) | $ 0.01 | |
|
|
|
|
|
|
|
$ 0.05 | $ 0.05 |
| Dividends per share declared for the period | $ 0.20 | $ 0.15 | |
|
|
|
|
|
|
|
|
|
| MEMO: |
|
|
|
$ 5,925 | $ 5,507 |
| Depreciation and amortization |
| $ 21,809 | $ 23,255 |
$ 6,070 | $ 4,668 |
| Pension loss amortization |
| $ 24,281 | $ 18,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SEGMENT OPERATING RESULTS |
|
|
|
|
|
| (Dollars in thousands) |
|
|
|
|
|
| (Unaudited) |
|
|
|
Fourth Quarter |
|
|
| Y-T-D |
| |
13 Weeks Ended | 13 Weeks Ended |
| 52 Weeks Ended | 52 Weeks Ended | ||
1-Jan-12 | 2-Jan-11 |
|
|
| 1-Jan-12 | 2-Jan-11 |
|
|
| REVENUE |
|
|
|
$ 44,658 | $ 43,892 |
| Financial Services |
| $ 174,170 | $ 175,677 |
39,654 | 44,689 |
| Commercial Markets |
| 159,392 | 170,636 |
59,332 | 66,315 |
| Healthcare |
| 236,772 | 250,963 |
17,748 | 17,788 |
| Industrial |
| 77,775 | 71,101 |
$ 161,392 | $ 172,684 |
| Total Revenue |
| $ 648,109 | $ 668,377 |
|
|
|
|
|
|
|
|
|
| GROSS MARGIN |
|
|
|
$ 12,759 | $ 13,105 |
| Financial Services |
| $ 50,470 | $ 52,244 |
9,666 | 11,276 |
| Commercial Markets |
| 41,814 | 44,202 |
20,021 | 24,771 |
| Healthcare |
| 83,069 | 91,925 |
5,357 | 6,112 |
| Industrial |
| 22,816 | 21,437 |
$ 47,803 | $ 55,264 |
| Total Gross Margin |
| $ 198,169 | $ 209,808 |
|
|
|
|
|
|
|
|
|
| INCOME BEFORE TAXES |
|
|
|
$ 1,469 | $ 2,438 |
| Financial Services |
| $ 7,329 | $ 7,361 |
(2,440) | (373) |
| Commercial Markets |
| (3,959) | (3,323) |
2,110 | 6,676 |
| Healthcare |
| 14,475 | 19,575 |
(355) | 531 |
| Industrial |
| 113 | (449) |
(10,315) | (6,413) |
| Unallocated |
| (13,961) | (21,791) |
$ (9,531) | $ 2,859 |
| Total Income Before Taxes |
| $ 3,997 | $ 1,373 |
|
|
| CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|
| (Dollars in thousands) |
|
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
|
| 1-Jan-12 | 2-Jan-11 |
|
|
| ASSETS |
|
|
|
|
|
| Cash and cash equivalents |
| $ 1,569 | $ 531 |
|
|
| Accounts receivable |
| 113,403 | 122,308 |
|
|
| Inventories |
| 48,822 | 54,061 |
|
|
| Other current assets |
| 9,058 | 11,101 |
|
|
| Total current assets |
| 172,852 | 188,001 |
|
|
| Plant and equipment |
| 73,950 | 74,149 |
|
|
| Goodwill and intangible assets |
| 14,479 | 8,822 |
|
|
| Deferred taxes |
| 23,996 | 102,996 |
|
|
| Other assets |
| 8,584 | 10,819 |
|
|
| Total assets |
| $ 293,861 | $ 384,787 |
|
|
|
|
|
|
|
|
|
| LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY | |||
|
|
| Current portion long-term debt |
| $ 2,470 | $ 1,467 |
|
|
| Other current liabilities |
| 80,973 | 77,296 |
|
|
| Deferred compensation |
| 5,777 | 6,306 |
|
|
| Long-term debt |
| 60,149 | 42,926 |
|
|
| Retiree healthcare obligation |
| - | 4,931 |
|
|
| Pension benefit obligation |
| 236,206 | 185,174 |
|
|
| Other long-term liabilities |
| 7,339 | 6,883 |
|
|
| Shareholders' (deficit) equity |
| (99,053) | 59,804 |
|
|
| Total liabilities and shareholders' (deficit) equity | $ 293,861 | $ 384,787 | |
|
|
|
|
|
|
|
|
|
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
| (Dollars in thousands) |
|
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
|
| 52 Weeks Ended | |
|
|
|
|
| 1-Jan-12 | 2-Jan-11 |
|
|
| Net income (loss) plus non-cash items | $ 32,477 | $ 44,355 | |
|
|
| Working capital |
| 7,176 | (339) |
|
|
| Restructuring payments |
| (1,227) | (5,409) |
|
|
| Contributions to qualified pension plan | (25,000) | (24,000) | |
|
|
| Other (1) |
| (171) | (2,819) |
|
|
| Net cash provided by operating activities | 13,255 | 11,788 | |
|
|
| Capital expenditures, net |
| (14,186) | (8,403) |
|
|
| Acquisitions, net |
| (4,905) | (2,464) |
|
|
| Proceeds from sale of equipment |
| 1,845 | 359 |
|
|
| Net cash used in investing activities |
| (17,246) | (10,508) |
|
|
| Net change in borrowings under credit facility | 12,661 | 4,019 | |
|
|
| Principal payments on long-term debt | (1,721) | (1,477) | |
|
|
| Dividends paid |
| (5,836) | (5,807) |
|
|
| Other |
| 105 | 153 |
|
|
| Net cash provided by (used in) financing activities | 5,209 | (3,112) | |
|
|
| Effect of exchange rate |
| (180) | (41) |
|
|
| Net change in cash |
| $ 1,038 | $ (1,873) |
(1) Includes deferred compensation and 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) | ||||||
(Unaudited) | ||||||
Fourth Quarter |
|
|
| Y-T-D |
| |
13 Weeks Ended | 13 Weeks Ended |
| 52 Weeks Ended | 52 Weeks Ended | ||
1-Jan-12 | 2-Jan-11 |
|
|
| 1-Jan-12 | 2-Jan-11 |
$ (95,484) | $ 1,454 |
| GAAP Net (Loss) Income |
| $ (87,698) | $ 368 |
|
|
| Adjustments |
|
|
|
6,070 | 4,668 |
| Pension loss amortization |
| 24,281 | 18,672 |
67 | 370 |
| Pension settlement and postretirement plan amendment | (19,719) | 370 | |
5,263 | 758 |
| Restructuring and impairment charges* | 5,198 | 2,248 | |
(4,501) | (2,302) |
| Tax effect of adjustments (at statutory rates) | (3,850) | (8,454) | |
89,478 | - |
| Deferred tax valuation |
| 89,478 | - |
$ 893 | $ 4,948 |
| Non-GAAP Net (Loss) Income |
| $ 7,690 | $ 13,204 |
|
|
|
|
|
|
|
$ (3.28) | $ 0.05 |
| GAAP (Loss) Income Per Share |
| $ (3.02) | $ 0.01 |
|
|
| Adjustments, net of tax: |
|
|
|
$ 0.12 | 0.10 |
| Pension loss amortization |
| 0.50 | 0.39 |
$ - | 0.01 |
| Pension settlement and postretirement plan amendment | (0.41) | 0.01 | |
$ 0.11 | 0.02 |
| Restructuring and impairment charges | 0.11 | 0.05 | |
$ 3.08 | - |
| Deferred tax valuation |
| 3.08 | - |
$ 0.03 | $ 0.18 |
| Non-GAAP (Loss) Income Per Share | $ 0.26 | $ 0.46 | |
|
|
|
|
|
|
|
|
|
| GAAP Net Cash Flow |
| $ 1,038 | $ (1,873) |
|
|
| Adjustments: |
|
|
|
|
|
| Credit facility borrowed |
| (12,661) | (4,019) |
|
|
| Non-GAAP Net Cash Flow |
| $ (11,623) | $ (5,892) |
| *Includes impairment recorded in other income |
|
|
| ||