October 31, 2007 -- Standard Register recently reported its results for the third quarter and nine month periods ended September 30, 2007.
Results of Operations
Net Income for the third quarter was $2.2 million or $0.08 per share, compared to a net loss of $5.7 million or $0.20 per share in the prior year. Through nine months, the Company reported a net loss of $3.3 million or $0.11 per share, compared to a loss of $12.7 million or $0.44 for the same period of the prior year.
Restructuring, impairment, and pension charges figured prominently in the quarter and year-to-date periods in both years. The table isolates the impact of these and other factors on reported results.
The Company undertook restructuring actions in 2007 as part of an overall program to reduce its annual cost base by $40 million. Restructuring costs were $3.6 million and $7.7 million in the quarter and nine month periods, respectively.
Amortization of past years’ pension losses, primarily related to the weak stock markets in 2001 and 2002 as well as lower interest rates, have been substantial in recent years. This amortization was modestly lower in the quarter as a result of a higher interest rate and the re-measurement of the pension liability that recognized the lower number of active participants following the restructuring.
Interest expense has been higher in 2007, primarily as a result of higher debt balances.
For the quarter, operating income on continuing operations before restructuring, impairment, interest, pension amortization and pension settlement noted in the table above was $13.5 million compared to $6.0 million in the prior year. This improvement in earnings is attributed primarily to lower manufacturing and SG&A costs related to the restructuring and good health care cost experience.
For the year-to-date period, operating income on continuing operations before restructuring, impairment, interest, pension amortization and pension settlement was $26.1 million, versus $32.4 million in 2006. The decrease primarily reflects revenue decreases at a few large accounts and lower traditional forms sales - mitigated by growth in the Print-on-Demand business and lower operating costs.
Revenue was $208.3 million in the quarter, down $6.8 million compared to $215.1 million in the prior year. Substantially all of the decrease can be attributed to a single Document and Label Solutions (DLS) customer account. Excluding the effect of that account, DLS declined 3.6 percent or $4.8 million – largely offset by Print on Demand Services’ 6.9 percent or $4.1 million increase. All other smaller segments, taken as a whole, were up modestly.
Through nine months, Revenue was $646.9 million, down $19.4 million or 2.9 percent from the prior year. Three customers accounted for a drop of $24.8 million. Excluding these accounts, revenue was up about one percent overall with traditional forms off 4.3 percent, labels up 0.4 percent, POD Services ahead 7.3 percent, Document Systems up 8.6 percent, and other smaller segments increasing 13.8 percent.
“The revenue for the quarter and year-to-date periods reflect a dynamic we have seen for some time and expect to continue to see in the future,” said Dennis Rediker, Standard’s chief executive officer. “Our traditional print business is holding up reasonably well in a difficult market and is becoming a smaller component of our mix, as newer product and service offerings with good margins grow at a faster rate.”
On the balance sheet, net debt rose $9.6 million higher during the quarter, primarily resulting from stepped up pension contributions and the timing of a payroll disbursement. Contributions to the Company’s qualified pension plan were $9.0 million in the quarter and $20.0 million year-to-date, which completes the planned funding for this year.
Capital expenditures were $2.7 million, down from the $7.3 million quarterly average in the first half of the year. Current plans call for capital spending to also be modest in the fourth quarter, with total year expenditures in the $21 million to $23 million range.
Outlook
We expect our fourth quarter revenue to rebound strongly from the seasonally weaker third quarter, coming in near the level of our prior year fourth quarter. This would put the total year 2007 revenue a couple percentage points or so below the total for 2006.
As a result of productivity gains and lower operating costs, we expect operating earnings on continuing operations before restructuring, impairment, pension loss amortization, pension settlement, and interest expenses to be higher in the fourth quarter vis-à-vis the comparable quarter of 2006.
The improved fourth quarter earnings, coupled with below average spending on capital expenditures and pension funding, is expected to produce positive cash flow for the final quarter of the year.