-----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, PXjVZj0YSeP2HbPnJpbzrlaII9uM2pGijbhD4g3JjHbOeJN1PtRzvLVLHqJlqPMM sQrSQus/Li80PRlP3o01ww== 0000906318-99-000120.txt : 19991117 0000906318-99-000120.hdr.sgml : 19991117 ACCESSION NUMBER: 0000906318-99-000120 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991115 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: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11699 FILM NUMBER: 99754481 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 the Quarterly Period Ended October 3, 1999 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 (Exact name of registrant as specified in its charter) OHIO CORPORATION 31-0455440 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 ALBANY STREET, DAYTON, OHIO, 45401 (Address of principal executive offices) (Zip Code) (937) 221-1000 (Registrant's telephone number, including area code) 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of November 5, 1999 Common Stock - $1.00 Par Value 23,128,008 Class A Stock - $1.00 Par Value 4,725,000 INDEX Page Part I - Financial Information Item 1. Financial Statements a) Statement of Income for the13 Weeks Ended October 3, 1999 and September 27, 1998 and for the 39 Weeks Ended October 3, 1999 and September 27, 1998 4 b) Balance Sheet as of October 3, 1999 and January 3, 1999 5 c) Statement of Cash Flows for the 39 Weeks Ended October 3, 1999 and September 27, 1998 6 d) Note to Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10 Item 3. Quantitative and Qualitative Disclosure About Market Risk 11 Part II - Other Information Item 1. Legal Proceedings 11 Item 2. Changes in Securities and Use of Proceeds 11 Item 3. Defaults upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signature 12 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 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 are 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 January 3, 1999, and Current Report on Form 8-K as filed on April 15, 1999. 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. a) STATEMENT OF INCOME (In Thousands except Data Per Share) Third Quarter Nine Months 13 Weeks Ended 39 Weeks Ended Oct. 3, Sept. 27, Oct. 3, Sept. 27, 1999 1998 1999 1998 ------- --------- ------- --------- TOTAL REVENUE $325,900 $318,322 $988,523 $947,416 ------- ------- ------- ------- COSTS AND EXPENSES Cost of Products Sold 201,659 194,724 606,029 591,049 Engineering and Research 2,061 2,172 6,174 7,214 Selling and Administrative 84,355 80,157 258,626 242,358 Depreciation and Amortization 13,326 10,451 38,379 32,910 Interest 3,413 3,371 10,419 10,415 ------- ------- ------- ------- Total Costs and Expenses 304,814 290,875 919,627 883,946 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 21,086 27,447 68,896 63,470 Income Taxes 6,147 11,237 25,474 25,601 ------- ------- ------- ------- Income From Continuing Operations $14,939 $ 16,210 $43,422 $37,869 ------- ------- ------- ------- Discontinued Operations: Current Year (Loss)/Income, Net of Tax 0 1,007 (509) 1,407 Gain on Disposal, Net of Tax 0 0 14,875 0 ------- ------- ------- ------- NET INCOME $14,939 $ 17,217 $ 57,788 $ 39,276 ------- ------- ------- ------- ------- ------- ------- ------- Average Number of Shares Outstanding - Basic 27,976 28,454 28,171 28,442 Average Number of Shares Outstanding - Diluted 28,110 28,603 28,325 28,607 EARNINGS PER SHARE DATA - BASIC: Income From Continuing Operations $ 0.53 $ 0.57 $ 1.54 $ 1.33 Discontinued Operations, Current Year (Loss)/Income $ 0.00 $ 0.04 $ (0.02) $ 0.05 Gain on Disposal $ 0.00 $ 0.00 $ 0.53 $ 0.00 Net Income $ 0.53 $ 0.61 $ 2.05 $ 1.38 EARNINGS PER SHARE DATA - DILUTED: Income From Continuing Operations $ 0.53 $ 0.56 $ 1.53 $ 1.32 Discontinued Operations, Current Year (Loss)/Income $ 0.00 $ 0.04 $ (0.02) $ 0.05 Gain on Disposal $ 0.00 $ 0.00 $ 0.52 $ 0.00 Net Income $ 0.53 $ 0.60 $ 2.03 $ 1.37 Dividends Paid Per Share $ 0.22 $ 0.21 $ 0.66 $ 0.63 See note to financial statements.
b) BALANCE SHEET (Dollars in Thousands) Oct 3, Jan 3, ASSETS 1999 1999 CURRENT ASSETS ------ ------ Cash and Cash Equivalents $ 63,169 $ 9,792 Short Term Investments 480 6,530 Accounts Receivable 271,416 302,261 Allowance for Losses (13,184) (14,158) Inventories Finished Products 115,437 104,982 Jobs in Process 9,118 18,075 Materials and Supplies 11,169 15,319 Deferred Income Taxes 19,065 19,065 Prepaid Expense 11,646 11,929 ------- ------- Total Current Assets 488,316 473,795 PLANT AND EQUIPMENT Buildings and Improvements 92,582 93,552 Machinery and Equipment 283,877 306,658 Office Equipment 66,577 98,209 ------- ------- Total 443,036 498,419 Less Accumulated Depreciation 172,036 182,218 ------- ------- Depreciated Cost 271,000 316,201 Construction in Process 53,346 44,732 Land 10,279 7,228 ------- ------- Total Plant and Equipment 334,625 368,161 OTHER ASSETS Goodwill 53,142 57,825 Prepaid Pension Expense 80,948 73,538 Other 14,900 11,758 ------- ------- Total Other Assets 148,990 143,121 ------- ------- TOTAL ASSETS $971,931 $985,077 ------- ------- ------- ------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current Portion of Long-Term Debt 555 525 Accounts Payable 31,916 29,967 Dividends Payable - 6,251 Accrued Compensation 39,433 44,406 Accrued Other Expense 7,843 12,158 Accrued Taxes, except Income 5,748 9,329 Income Taxes Payable 15,575 1,335 Customer Deposits 263 3,138 Deferred Service Contract Income 8,841 8,404 Accrued Restructuring 11,958 14,843 ------- ------- Total Current Liabilities 122,132 130,356 ------- ------- LONG-TERM LIABILITIES Long-Term Debt 203,520 234,075 Deferred Compensation 6,985 3,795 Retiree Healthcare 55,057 55,057 Deferred Income Taxes 31,416 40,829 ------- ------- Total Long-Term Liabilities 296,978 333,756 ------- ------- SHAREHOLDERS' EQUITY Common Stock, $1.00 Par Value 24,454,317 Shares Issued in 1999 24,454 24,391,072 Shares Issued in 1998 24,391 Class A Stock, $1.00 Par Value 4,725,000 Shares Issued 4,725 4,725 Capital in Excess of Par Value 35,459 33,957 Accumulated Other Comprehensive Income (1,161) (1,161) Retained Earnings 525,102 479,679 Treasury Stock 1,180,395 Shares at Cost (33,762) 701,152 Shares at Cost (19,614) Common Stock held in Grantor Trust 59,047 Shares at Cost (1,996) 26,284 Shares at Cost - (1,012) ------- ------- Total Shareholders' Equity 552,821 520,965 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $971,931 $985,077 ------- ------- ------- ------- See note to financial statements.
c) STATEMENT OF CASH FLOWS (Dollars in Thousands) Nine Months 39 Weeks Ended Oct 3, Sept 27, 1999 1998 ------ -------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $57,788 $39,276 Add Items Not Affecting Cash: Depreciation and Amortization 40,091 39,847 (Gain)/Loss on Sale of Plant Assets (23,252) 94 Net Change to Investments 6,050 21 Net Change to Retiree Healthcare 0 (253) Net Change to Deferred Income Taxes (9,413) 0 Net Change to Deferred Compensation 3,190 2,653 Increase/(Decrease) in Cash Arising from Changes in Assets and Liabilities: Accounts Receivable 13,387 3,743 Deferred Accounts Receivable 631 48,293 Inventories (829) (65,735) Other Assets (4,552) 3,306 Prepaid Pension (7,410) (3,409) Accounts Payable and Accrued Expenses (6,119) (7,792) Accrued Restructuring Expenses (2,885) (17,684) Income Taxes Payable 14,240 808 Customer Deposits (2,875) (1,200) Deferred Service Income 438 3,372 ------- -------- Net Adjustments 20,692 6,064 ------- -------- Net Cash Provided by Operating Activities 78,480 45,340 ------- -------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from Sale of Facilities 98,149 1,159 Additions to Plant and Equipment (50,072) (55,457) Acquisition (10,414) (245,000) Maturity of Short-Term Investments - 30,481 Purchase of Short-Term Investments - (15,000) Investment in F3/Keyfile Corporation (57) (1,000) Purchase of Key Man Life Insurance Policies 0 (2,400) ------- -------- Net Cash Provided by (Used in) Investing Activities 37,606 (287,217) ------- -------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Long-Term Debt - 230,000 Payments of Long-Term Debt (30,525) (1,294) Proceeds from Issuance of Common Stock 1,565 1,948 Redemption of Common Stock (15,132) (2,052) Dividends Paid (18,617) (17,930) ------- -------- Net Cash (Used in) Provided by Financing Activities (62,709) 210,672 ------- -------- ------- -------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 53,377 (31,205) Cash and Cash Equivalents, Beginning 9,792 67,556 ------- -------- CASH AND CASH EQUIVALENTS, ENDING $63,169 $36,351 ------- -------- ------- -------- See note to financial statements.
d) NOTE TO FINANCIAL STATEMENTS 1. SEGMENT REPORTING INFORMATION - (SEE NOTE 15 TO FINANCIAL STATEMENTS AT JANUARY 3, 1999). Due to the sale of the Communicolor operation in the first quarter of 1999 and management restructuring occurring in the second quarter of 1999, the Company now has only one reportable segment. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS FROM OPERATIONS Results of Operations Net income for the third quarter ended October 3, 1999 was $14.9 million or $.53 per diluted share, compared to $17.2 million and $.60 per diluted share for the third quarter 1998. On a continuing operations basis, excluding the results of the Communicolor Division divested April 1, 1999, the $.53 per diluted share result for the current quarter compares to $.57 for the comparable period of 1998. Through nine months, earnings per diluted share on continuing operations rose 15.8% from $1.32 in 1998 to $1.53 this year. Revenue from continuing operations for the third quarter was $325.9 million, 2.4% above the $318.3 million reported for the third quarter 1998. For the first three quarters, revenue from continuing operations was $988.5 million, 4.3% ahead of last year's results. Product results from continuing operations for the Company are summarized below with a comparison to the prior year. $ Millions Third Quarter Nine Months Y-T-D --------------------------- --------------------- 1999 1998 % Chg. 1999 1998 % Chg. Business Forms & Services $172.8 $176.7 -2.2% $523.2 $528.8 -1.1% Stanfast 47.9 45.5 5.3% 144.6 137.7 5.0% Labels 42.8 37.5 14.1% 128.2 107.5 19.3% Equipment and Supplies 31.3 30.6 2.3% 103.8 98.4 5.5% Imaging Services 24.0 27.9 -14.0% 71.2 74.2 -4.0% Commercial Printing 6.6 -- 16.3 -- Interest Income & Other 0.5 0.1 1.2 0.8 ---- ----- ----- ----- ----- ---- Total Company $325.9 $318.3 2.4% $988.5 $947.4 4.3% Sales of traditional business forms and related services were down 2.2% and 1.1% for the quarter and year-to-date periods, respectively. This is generally in line with the overall industry trend of decline or slow growth in traditional forms products and faster growth in other print related products and services. Non- traditional products and services, which now account for approximately 47% of Standard Register revenue, include pressure sensitive labels, (Stanfast) print on demand, document systems, commercial printing, and (Imaging Services) print outsourcing and fulfillment. Revenue from these non-traditional product categories, taken as a whole, increased 8.1% and 11.2% for the quarter and year-to-date periods, respectively. The uncharacteristic decline in Imaging Services revenue primarily reflects a shift this year in the proportion of custom produced product that is stored in distribution centers prior to shipment and invoicing to customers. The reported gross margin from continuing operations decreased from 38.8% of revenue in the third quarter 1998 to 38.1% in the current quarter. As a result of rising paper prices, there was an unfavorable LIFO inventory charge in the third quarter of $4.4 million pretax; by comparison, the prior year's third quarter included a favorable adjustment of $2.0 million. The Company also changed the classification of certain expenses associated with its Customer Support Centers from cost of sales in 1998 to selling expense in 1999. Adjusting for the non-operating LIFO adjustments in each of the quarters and the expense classification change results in a quarter-to-quarter gross margin improvement of eighty basis points in relation to revenue. Management believes it has realized sufficient overall increases in the selling prices of its forms to recover the higher paper prices experienced thus far in 1999. This, coupled with cost reductions achieved late in 1998 and early in 1999, have produced the improvement in operating gross margin identified above. Management expects paper costs to continue to rise modestly during 2000, based on strong demand and relatively high mill operating rates. Historically, the Company has been able to recover most, if not all, of increases in paper costs and expects to continue to do so over the foreseeable future. Total selling, administrative, and R&D expenses were $2.8 million lower than the quarterly run rate in the first half of this year, primarily as a result of lower compensation costs. In comparison to the third quarter of 1998, the total of these operating expenses was 60 basis points higher in relation to revenue -- 26.5% this year compared to 25.9% for 1998. Adjusting for the expense reclassification described in an earlier paragraph draws the increase in this quarter's expense ratio to within 20 basis points of the prior year result. This increase is primarily attributable to consulting fees related to various software and cost reduction initiatives that are underway. The valuation of the Communicolor sale was completed during the quarter resulting in the Company's ability to deduct $5.5 million of prior capital losses previously not deductible. This resulted in a reduction of the tax provision of $2.3 million and reduced the effective tax rate to 31.1% for the quarter, well below the average 40.1% for the first half of the year. The effective tax rate is expected to return to normal levels in the fourth quarter. Segment Reporting Following the April 1, 1999 sale of Communicolor, the Company reorganized into one identifiable operating segment effective July 1, 1999. With the elimination of the divisional operating structure, the Company is aligned along functional lines (e.g., sales, manufacturing, finance) designed to improve the effectiveness of customer service throughout the organization. The new structure brings an integrated set of the company's products and services to our customers. Year 2000 The Company's program to ensure that its products and critical systems will be Year 2000 compliant was undertaken in 1997. With regard to its critical internal information systems, the Company has undertaken a rigorous three-phase process to identify potential date-related problems in all applications, made the necessary modifications, and tested for compliance. Management believes that all critical internal systems are now Year 2000 compliant. With regard to Year 2000 problems in equipment products sold to customers, the Company employed the same three- phase approach and has brought its current product line offering into Year 2000 compliance. The Company has elected not to evaluate, modify, or test selected discontinued products. In certain cases, owners of discontinued products may purchase new equipment that is Year 2000 compliant; for certain other products, the Company made available an upgrade to a Year 2000 compliant version. The Company is using its best efforts to notify equipment customers of their options. Equipment sales year-to-date in 1999 represented approximately 4% of total Company revenue. The Company has initiated inquiries to its major vendors in order to judge the likelihood and probable impact of interruptions in raw materials and critical supplies. Although we are reasonably assured that our major vendors are Year 2000 compliant, interruptions are possible. A worst case scenario would involve temporary interruptions in products and services to the Company that could translate to interruptions of our products and services to our customer. As a result, the Company has developed and distributed a Year 2000 Checklist and Contingency Plan to all production facilities, warehouses, field offices, and headquarters complex. Included in this plan are our implementation steps to immediately resolve problems as they arise. The Company has completed its work on the Year 2000 readiness at a total cost since 1997 of $12.1 million. Given the focus and scope of the Company's program, management believes its most likely Year 2000 problem will originate from a non-mission critical system and will represent an inconvenience rather than a significant business interruption. Novation Contract Standard Register has provided business forms, labels, and related services to Novation and to its predecessor, VHA, over the past 21 years under a contract arrangement that identified Standard Register as the endorsed supplier. Novation negotiates supplier- pricing arrangements on behalf of its member hospitals, but participating hospitals are not mandated to purchase from the Company under the contract. After 21 years as the endorsed supplier of business forms, Standard Register currently counts about 50% of member hospitals as customers with product revenues in excess of $100 million annually. In September 1999, Novation, awarded a three-year, dual-source document services outsourcing contract to two of the Company's competitors, replacing the sole-source contract with Standard Register. Although the Company expects to lose some revenue due to the aggressive pricing levels of the dual-source contract, management expects to leverage the Company's extensive healthcare experience and long-standing relationships with individual hospitals to retain a significant majority of the business. New Software Initiative In July, the board of directors approved a new software initiative that will be critical to the Company's long-term growth and profitability. The software, which will be installed in phases over three years, will accommodate increasing order volumes, reduce operating costs, add to existing electronic commerce capabilities, and improve customer service. Spending for the new initiative is expected to total $52 million over three years, including $38 million of capital and $14 million in expense. Annual savings are forecasted to be $23 million once the new software is fully operational. There was minimal expenses incurred in the third quarter, but fourth quarter 1999 and total year 2000 expenditures are estimated to reduce net income per share by $.06 and $.28, respectively. Liquidity and Capital Resources The balance of Cash, Cash Equivalents, and Short-term Investments increased $15 million during the quarter to $63 million. Debt remained at $204 million. Netting the $63 million of cash against total debt of $204 million produces a "net debt" to "total net capital" ratio of 20.3%. On April 13, 1999, the Company announced plans to repurchase of up to one million shares of its common stock. The timing and actual number of shares purchased will depend upon overall market conditions. As of this writing, the Company has purchased a total of 672 thousand shares in 1999. Capital expenditures were $13 million for the quarter. The current outlook for the year calls for capital spending in the $75 million to $80 million range, excluding the $10 million first quarter acquisition of the Company's Boothwyn facility and including an estimated $11 million for the new software initiative. The Company believes that its financial condition continues to be very strong and that the combination of internally generated funds, existing cash reserves, and $100 million of available credit under the revolving credit agreement will be sufficient to finance its operations over the next year. Forward-Looking Statements This report includes forward-looking statements covered by the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These statements involve important assumptions, risks, uncertainties and other factors that could cause the Company's actual results for fiscal year 1999 and beyond to differ materially from those expressed in such forward-looking statements. Factors that could cause materially different results include product demand and market acceptance, the frequency and magnitude of raw material price changes, the effect of economic conditions, competitive activities, and other risks described in the Company's filings with The Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK There have been no material changes in market risk since the year ended January 3, 1999. 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 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8K Exhibits pursuant to Item 601 of Regulation S-K a) Exhibit 27 Financial Data Schedule (filed only electronically with the SEC) b) Reports on Form 8K Form 8K was not filed within the reporting period. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized. November 16, 1999 /s/ C. J. Brown By C. J. Brown, Sr. Vice President, Administration, Treasurer, Chief Financial Officer, and Chief Accounting Officer EX-27 2
5 THIS SECTION CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STANDARD REGISTER COMPANY FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED OCTOBER 3, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000093456 STANDARD REGISTER COMPANY 1,000 9-MOS JAN-2-2000 JAN-4-1999 OCT-3-1999 63,169 480 271,416 13,184 135,724 488,316 506,661 172,036 971,931 122,132 203,520 0 0 29,179 523,642 971,931 987,309 988,523 606,029 909,208 0 4,455 10,419 68,896 25,474 43,422 14,366 0 0 57,788 2.05 2.03
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