-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JtidbASuQw7hDQ8zufDb+gh66Rho4K9nWAC7AE3Quq5PUjTDrAMHabgPf9DhC48O NQESEbHhN+2C9K80ogdkzw== 0000093456-98-000003.txt : 19980813 0000093456-98-000003.hdr.sgml : 19980813 ACCESSION NUMBER: 0000093456-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANDARD REGISTER CO CENTRAL INDEX KEY: 0000093456 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 310455440 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11699 FILM NUMBER: 98683810 BUSINESS ADDRESS: STREET 1: 600 ALBANY ST CITY: DAYTON STATE: OH ZIP: 45401 BUSINESS PHONE: 5134341000 MAIL ADDRESS: STREET 1: 600 ALBANY STREET STREET 2: P O BOX 1167 CITY: DAYTON STATE: OH ZIP: 45401-1167 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 28, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From to Commission File Number 01-1097 THE STANDARD REGISTER COMPANY OHIO CORPORATION 31-0455440 600 ALBANY STREET, DAYTON, OHIO 45401 TELEPHONE NUMBER 937-443-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No. . CLASS OUTSTANDING AS OF June 28, 1998 Common Stock - $1.00 Par Value 23,731,328 Class A Stock - $1.00 Par Value 4,725,000 - 1 of 13 - THE STANDARD REGISTER COMPANY INDEX Page No. PART I - FINANCIAL STATEMENTS Balance Sheet June 28, 1998, and December 28, 1997 3 Statement of Income 13 Weeks Ended June 28, 1998, and June 29, 1997, and for the 26 Weeks Ended June 28, 1998, and June 29, 1997 4 Statement of Cash Flows 26 Weeks Ended June 28, 1998, and June 29, 1997 5 Note to Financial Statements 6 The financial statements of the Registrant included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted, the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K of the Registrant for the year ended December 28, 1997. The financial statements included herein reflect all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary to present a fair statement of the results for the interim periods. The results for interim periods are not necessarily indicative of trends or of results to be expected for a full year. Management's Discussion and Analysis of the Interim Financial Statements 7-10 Quantitative and Qualitative Disclosure About Market Risk 10 PART II - OTHER INFORMATION AND SIGNATURE Legal Proceedings 11 Changes in Securities and Use of Proceeds 11 Defaults upon Senior Securities 11 Submission of Matters to a Vote of Security Holders 11 Other Information 11 Exhibits and Reports on Form 8-K 11 Signature 12 Exhibit Index 13 - 2 of 13 - THE STANDARD REGISTER COMPANY BALANCE SHEET (Dollars in Thousands) ASSETS June 28, December 28, 1998 1997 CURRENT ASSETS Cash and Cash Equivalents $ 19,656 $ 67,556 Short Term Investments 16,019 16,055 Accounts Receivable, less Allowance for Losses 264,354 191,031 Deferred Accounts Receivable, less Allowance for Losses 4,514 Inventories Finished Products 118,574 58,675 Jobs in Process 28,543 16,500 Materials and Supplies 12,514 10,371 Deferred Income Tax 6,168 6,168 Prepaid Expense 9,625 12,462 Total Current Assets 479,967 378,818 PLANT AND EQUIPMENT Buildings and Improvements 95,293 67,874 Machinery and Equipment 317,767 237,320 Office Equipment 60,093 67,324 Total 473,153 372,518 Less Accumulated Depreciation 181,140 155,634 Depreciated Cost 292,013 216,884 Construction in Process 71,731 39,070 Land 9,532 4,081 Total Plant and Equipment 373,276 260,035 OTHER ASSETS Goodwill, Patents, and Other 32,291 3,099 Prepaid Pension Expense 70,917 Investment in F3 4,785 5,066 Total Other Assets 107,993 8,165 TOTAL ASSETS 961,236 647,018 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable 45,485 25,296 Dividends Payable - 5,968 Accrued Compensation 33,157 34,817 Accrued Other Expense 11,614 4,581 Accrued Taxes, except Income 8,108 6,977 Income Taxes Payable 1,335 1,155 Customer Deposits 20,255 21,003 Deferred Service Contract Income 9,544 7,222 Total Current Liabilities 132,498 107,019 LONG-TERM LIABILITIES Long-Term Debt 234,630 4,600 Deferred Compensation 2,635 Retiree Healthcare 55,562 28,779 Accrued Restructuring 30,583 Deferred Income Taxes 652 18,685 Total Long-Term Liabilities 324,080 52,064 SHAREHOLDERS' EQUITY Common Stock, $1.00 Par Value 24,365,964 Shares Issued in 1998 24,366 24,308,437 Shares Issued in 1997 24,308 Class A Stock, $1.00 Par Value 4,725,000 Shares Outstanding 4,725 4,725 Capital in Excess of Par Value 32,841 31,599 Retained Earnings 460,338 444,259 Treasury Stock, 632,636 Shares at Cost (17,612) 615,073 Shares at Cost (16,956) Total Shareholders' Equity 504,658 487,935 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $961,236 $647,018 See notes to financial statements. - 3 of 13 - THE STANDARD REGISTER COMPANY STATEMENT OF INCOME (In Thousands except Data Per Share) Second Quarter Six Months 13 Weeks Ended 26 Weeks Ended June 28, June 29, June 28, June 29, 1998 1997 1998 1997 TOTAL REVENUE $333,654 $236,467 $677,711 $466,581 COSTS AND EXPENSES Cost of Products Sold 210,177 139,930 432,650 276,455 Engineering & Research 2,441 2,312 5,223 4,793 Selling and Administrative 83,246 56,587 169,059 112,951 Depreciation and Amortization 13,524 9,471 27,045 18,627 Interest 3,614 70 7,044 147 Total Costs and Expenses 313,002 208,370 641,021 412,973 INCOME BEFORE INCOME TAXES 20,652 28,507 36,690 53,608 Income Taxes 8,284 11,098 14,631 21,661 NET INCOME $ 12,368 $ 16,999 $ 22,059 $ 31,947 Average Number of Shares Outstanding (000): Basic 28,445 28,507 28,435 28,507 Diluted 28,606 28,716 28,609 28,716 DATA PER SHARE: Earning Per Share: Basic $ 0.44 $ 0.60 $ 0.78 $ 1.12 Diluted 0.43 0.59 0.77 1.11 Dividends Paid 0.21 0.20 0.42 0.40 See notes to financial statements. - 4 of 13 - THE STANDARD REGISTER COMPANY STATEMENT OF CASH FLOWS (Dollars in Thousands) Six Months 26 Weeks Ended June 28, June 29, 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 22,059 $ 31,947 Add Items not Affecting Cash: Depreciation and Amortization 27,045 18,627 Loss on Sale of Facilities 87 183 Net Change to Investments 21 793 Change to Retiree Healthcare 831 910 Net change to Deferred Compensation 2,653 - Increase (Decrease) in Cash Arising from Changes in Asset and Liabilities: Accounts Receivable 8,838 19,213 Deferred Accounts Receivable 46,255 - Inventories (58,085) 1,170 Other Assets 5,863 436 Prepaid Pension 4,725 - Accounts Payable (10,408) (1,076) Accrued Expenses (13,966) (7,134) Accrued Restructuring Expenses (9,378) - Income Taxes Payable (1,920) (84) Customer Deposits (747) 3,033 Deferred Service Income 2,323 736 Net Adjustments 4,137 36,807 Net Cash Provided by Operating Activities 26,196 68,754 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sale of Facilities 53 199 Additions to Plant and Equipment (43,445) (30,610) Acquisition (245,000) - Maturity of Short Term Investments 15,295 - Purchase of Short Term Investments (15,000) - Investment in F3 Corporation (1,000) (3,028) Purchase of Key Man Life Insurance Policies (2,400) - Net Cash (Used in) Investing Activities (291,497) (33,439) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Long Term Debt 230,000 - Payments of Long Term Debt (1,294) - Proceeds from Issuance of Common Stock 1,300 2,584 Redemption of Common Stock (656) (11,365) Dividends Paid (11,949) (11,427) Net Cash Provided by (Used in) Financing Activities 217,401 0 (20,208) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (47,900) 15,107 Cash and Cash Equivalents, Beginning 67,556 64,550 CASH AND CASH EQUIVALENTS, ENDING $ 19,656 $ 79,657 See notes to financial statements. - 5 of 13 - THE STANDARD REGISTER COMPANY NOTE TO FINANCIAL STATEMENTS NOTE - ACQUISITION OF UARCO INCORPORATED On December 31, 1997, the Company acquired all outstanding shares of Uarco Incorporated. Uarco Incorporated operated as a wholly owned subsidiary for three months until it was merged into The Standard Register Company on March 31, 1998. The purchase price was $245 million in cash, of which $230 million was financed under a new five-year bank revolving credit agreement. The acquisition has been accounted for under the purchase method. The purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair market values. This allocation has been completed on a preliminary basis, and as a result, adjustments to the carrying values of assets and liabilities may occur during 1998 as additional information becomes available. The unaudited pro forma information for the periods set forth below give effect to the acquisition and related financing as if they had occurred on December 29, 1997 and December 30, 1996. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had these transactions been consummated at the beginning of the periods presented. (in thousands of dollars) Second Quarter Six Months 13 Weeks Ended 26 Weeks Ended June 28, June 29, June 28, June 29, 1998 1997 1998 1997 Total Revenue $333,654 $353,422 $677,711 $693,370 Net Income 12,368 3,561 22,059 2,689 Earnings Per Share Basic $ 0.44 $ 0.12 $ 0.78 $ 0.09 Diluted 0.43 0.12 0.77 0.09 - 6 of 13 - THE STANDARD REGISTER COMPANY MANAGEMENT DISCUSSION AND ANALYSIS OF THE INTERIM FINANCIAL STATEMENTS Results Of Operations Net income for the second quarter ended June 28, 1998, was $12.4 million or $0.44 per basic share compared to $17.0 million and $0.60 per basic share for the second quarter of 1997. On a diluted basis, per-share results were $0.43 for the current quarter compared to $0.59 for the second quarter of 1997. Revenue for the quarter was $333.7 million, up 41.1% from the $236.5 million reported for the second quarter of 1997. The quarter's results were in line with the Company's business plan and reflected steady progress in the assimilation of Uarco Incorporated, acquired December 31, 1997. Uarco=s operating losses for 1997 were $39.2 million on revenues of $473.6 million. In order to capitalize on the significant opportunities presented by the combination of the two companies, Standard Register's business plan was built around the following objectives: Achieve a rapid integration to capitalize on the strengths of the respective companies and to present a single face to customers. Most restructuring actions were to be completed by mid-year 1998. Target profit improvements in the $80 million to $100 million range, including both cost reductions from structural changes and improved margins in unprofitable accounts. Be prepared for the loss of some revenue that is inevitable in acquisitions of this type, but minimize the loss of profitable or potentially profitable business. Achieve successive quarterly increases in earnings during 1998, exiting the year in a strong position for 1999. Rapid Integration and Profit Improvements The operations of Uarco and Standard Register were immediately reorganized along product lines into two new divisions reporting to the Chief Operating Officer. Each division provides marketing, research and development, manufacturing, and administrative support for their respective products: Document Management and Systems Division (DM&S) Business forms C. Forms management and distribution services C. Pressure sensitive labels C. Document management systems, maintenance services, and supplies C. Application software and services for electronic forms and workflow Impressions Division Promotional direct mail C. Imaging services, including plastic card and fulfillment programs C. Stanfast on-demand printing - 7 of 13 - Within two weeks following the acquisition, Uarco=s and Standard Register's forms sales forces were combined into a single unit, also reporting to the Chief Operating Officer. All sales managers were appointed and sales assignments made. A plan was established, largely executed by the end of the second quarter 1998, to consolidate sales operations into a fewer number of locations in order to reduce costs and improve effectiveness. As expected, sales turnover since the reorganization has been higher than historical Standard Register levels and has contributed to the loss of a modest amount of business. In Management's judgment, the advantages realized by the sales force consolidation in terms of coordinated sales efforts, common pricing policies, and improved customer service far outweigh the transitional adverse effects. Uarco's former headquarters in Barrington, Illinois, was closed at the end of June after administrative support operations had been shifted during the second quarter to Standard's Dayton, Ohio, headquarters. The Company is currently negotiating a contract for the sale of the former headquarters facility. The transfer of the former Uarco operations to Standard's computer systems is well underway and is expected to be completed by year-end 1998. Manufacturing plants, most specialized along product and feature lines, were aligned with the new divisional structure. During the second quarter, the Company completed several plant consolidations in order to reduce costs. Forms plants at Roseburg, Oregon, and Deep River, Connecticut, were closed with most production capacity transferred to nearby forms plants. Four acquired print centers were closed, consolidating their operations into existing Stanfast Centers, which now number 34. The transformation of the Radcliff, Kentucky, plant into a specialized pressure sensitive lable plant was also begun in the second quarter. The company also announced the December 1998 closure of the former Uarco's Adrian, Michigan, customer support center; the center's duties will be performed in the regional sales offices. The majority of the costs related to the above consolidations were provided for in the $39.7 million restructuring liability established on the opening balance sheet for the combined entities under purchase accounting. The costs not chargeable to that liability, such as relocation and training expenses, have been relatively minor and will be addressed later in this discussion. Other cost-saving initiatives include the buyout of selected Uarco operating leases, in-house production of orders formerly subcontracted to outside suppliers, warehouse consolidations, and other purchasing savings. The majority of the plant consolidations and other cost-saving sanctions were completed during the latter part of the second quarter. Improving the profitability of low-margin accounts will be an ongoing effort this year. The Company expects that the actions taken to reduce costs and improve account margins will enable the Company to achieve annualized profit improvements in the range targeted at the outset of the acquisition. Successive Quarterly Increases in Earnings In the first quarter 1998, the Company was able to identify the separate contributions of Uarco and Standard Register. With the integration of operations and reporting systems during the second quarter, this delineation is no longer possible. The comments that follow compare the Company's second quarter 1998 to the first quarter 1998, in keeping with the Company's objective of increasing earnings in each successive quarter of 1998. The following summarizes the key components of the Statement of Income for the first and second quarters 1998. Values shown are in millions except for per-share amounts. - 8 of 13 - 1st Quarter 2nd Quarter Revenue DM&S Division $253.4 $236.6 Impressions Division 90.2 96.4 Other 0.5 0.7 Total Revenue $344.1 $333.7 % Increase 49.5% 41.1% Gross Margin 121.6 123.5 % Revenue 35.3% 37.0% SG&A Expenses $88.6 85.7 EBITDA 33.0 37.8 % Revenue 9.6% 11.3% Depreciation and Amortization 13.5 13.5 Interest Expense 3.4 3.6 Pretax Profit 16.1 20.7 Income Taxes 6.4 8.3 % Rate 39.6% 40.1% Net Income $9.7 $12.4 EPS--Basic $0.34 $0.44 --Diluted $0.34 $0.43 The revenue for the second quarter was $10.4 million below that for the first quarter, the net result of a 6% reduction in the Document Management and Systems Division and a 7% increase in the Impressions Division. The decrease in DM&S Division was primarily in the business forms product lines as a result of the sales turnover produced by the acquisition. Within the Impressions Division, each of the Communicolor, Imaging Services, and Stanfast operating groups recorded growth from the first to second quarters. The gross margin improved from 35.3% in the first quarter to 37.0% in the second. The cost of white bond papers were lower in the second quarter and forms pricing generally held up. Plant closings also contributed to the improvement, although most consolidations occurred too late in the quarter to have a significant effect. The adoption of Standard Register=s pricing policies had the effect of raising the target prices for some forms sold to some former Uarco customers; although management believes progress has been made on some unprofitable accounts, improvement is expected to be gradual as the year progresses. The Company did not record a LIFO inventory adjustment in either of the first two quarters. Selling, general, and administrative expenses were down $2.9 million, reflecting savings from consolidations that occurred prior to the end of the quarter. Integration expenses, including relocation, travel, and other expenditures not chargeable to the opening restructuring liability were $2.1 million in the second quarter, $1.3 million above the first quarter amount. Year 2000 expenditures were $1.9 million, $0.4 million higher than the $1.5 million spent in the first quarter. Excluding the increases in expense for integration and Year 2000, second quarter operating expenses dropped $4.6 million. The Company expects to spend $6.0 million in 1998 and an additional $3.0 million in 1999 to complete the necessary testing and modifications to ensure that its computer systems are Year 2000 complaint. Depreciation and amortization was unchanged at $13.5 million for the quarter; annual depreciation is expected to be approximately $55 million. Interest expense was up slightly; debt levels were unchanged during the second quarter. - 9 of 13 - The improved percentage Gross Margin and lower SG&A expenses lifted the second quarter's Net Income $2.7 million above that for the first quarter; basic earnings per share were $0.44 compared to $0.34 in the preceding quarter. Financial Condition Cash, cash equivalents, and short-term investments totaled $35.7 million at the end of the second quarter, down $25.6 million from the balance at the end of the first quarter. The decline is attributable primarily to $8.5 million in restructuring and acquisition expenditures, $11.0 million in operating lease buyouts, and a $6.0 million reduction in customer prepayments. Debt was unchanged in the quarter. Capital expenditures in the quarter were $28.8 million, which included the lease buyouts ($15.5 million, including a $4.5 million deposit applied to the buyout price). Annual capital spending for 1998 is expected to be in the $80 million range, including the lease buyouts. The Company's financial condition remains very strong. The ratio of long-term debt to total capital (long-term debt plus equity) was 31.7% at the end of the second quarter. Subtracting the cash, cash equivalent, and short-term investment balances from the long-term debt and total capital produces a "net debt" to "net capital" ratio of 28.3%. The Company believes that the combination of internally generated funds, existing cash reserves, and $70 million of available credit under the revolving credit agreement will be sufficient to finance its operations over the next year. Quantitative and Qualitative Disclosure About Market Risk Not applicable. - 10 of 13 - PART II - OTHER INFORMATION ITEM 1 Legal Proceedings There have been no material legal proceedings within the reporting period that the Company has been involved with beyond those conducted in a normal course of business. ITEM 2 Changes in Securities and Use of Proceeds None. ITEM 5 Defaults Upon Senior Securities None. Item 4 Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held April 14, 1998. The results of the voting were reported in the Form 10Q for the quarter ended March 29, 1998. Item 5 Other Information None. Item 6 Exhibits and Reports on Form 8K Exhibit Description 27 Financial Data Schedule Form 8K was not filed within the reporting period. - 11 of 13 - 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 thereunto duly authorized. August 12, 1998 THE STANDARD REGISTER COMPANY AND SUBSIDIARY /s/ C. J. Brown By C. J. Brown, Sr. Vice President, Administration, Treasurer, Chief Financial Officer, and Chief Accounting Officer - 12 of 13 - EXHIBIT INDEX Number Description 27 Financial Data Schedule 13 of 13 EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from the Standard Register Company financial statements for the six months ended June 28, 1998, and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JAN-O3-1999 JUN-28-1998 19,656 16,019 287,368 18,500 159,631 479,967 554,416 181,140 961,236 132,498 234,630 0 0 29,091 475,567 961,236 676,509 677,711 432,650 641,021 0 753 7,044 36,690 14,631 22,059 0 0 0 22,059 0.78 0.77
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