-----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, V6UiJGr8LxPEs5Oq3OEhKPrSXJjDjbc8SaIGvX2NCwttr12pdJa3fNSESBRQSAdO Li/gD2DI3R6Jbs3pBlAVgQ== 0000950152-97-002061.txt : 19970324 0000950152-97-002061.hdr.sgml : 19970324 ACCESSION NUMBER: 0000950152-97-002061 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970321 SROS: NONE 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11699 FILM NUMBER: 97560341 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-K405 1 THE STANDARD REGISTER COMPANY 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 29, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to ------ ------ Commission file number 1-1097 THE STANDARD REGISTER COMPANY (Exact name of Registrant as specified in its charter) OHIO 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) 443-1000 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT Name of each exchange Title of each class on which registered - ------------------- ------------------- Common stock $1.00 par value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the Registrant at February 21, 1997 was approximately $420,884,000, based on a closing sales price of $33.12 per share on February 21, 1997. At February 21, 1997, the number of shares outstanding of the issuer's classes of common stock are as follows: Common stock, $1.00 par value 24,025,158 shares Class A stock, $1.00 par value 4,725,000 shares Part III incorporates information by reference from the Proxy Statement for Registrant's Annual Meeting of Shareholders to be held on April 16, 1997. -1- 2 THE STANDARD REGISTER COMPANY FORM 10-K PART I ITEM 1. - BUSINESS The Standard Register Company began operations in 1912 in Dayton, Ohio. Throughout its history, its primary business has been the design, manufacture, and sale of business forms. However, to meet the needs of today's business environment, the Company provides a wide range of products and services that facilitate the recording, storage and communication of business transactions and information. The Company believes that it is the second largest in the highly competitive U.S. forms industry, which includes approximately 500 companies. Key differentiating factors within the industry include quality, level of service, and price. The variety of products and services currently sold is extensive. The Company's Document Management Division serves the document technology and information needs of its customers by offering custom printed business documents, electronic documents, pressure sensitive labels, document warehousing and distribution, workflow analysis and document design, along with imaging and fulfillment services. The Company's Document Systems Division provides scaleable, departmental printing and mailing solutions, which when combined with the products and services of the Document Management Division, result in more efficient ways for customers to produce, finish, and process documents. These solutions encompass intelligent printing systems, encoding equipment, automation identification systems, document processing equipment along with related maintenance service and supplies. The Company's Communicolor Division prints high color, personalized promotional direct mail products. The Company's products and services are marketed by direct selling and service organizations operating from offices located in principal cities throughout the United States. Forms are produced at forty-seven plants located throughout the United States and are shipped directly to the customer or stored in warehouses for subsequent on-demand delivery. The management of forms inventories to provide just-in-time delivery is a major element of customer service. The Company purchases raw paper in a wide variety of weights, grades, and colors from various paper mills in the United States and Canada. Carbonless paper, inks, carbon, and printing supplies are available nationally and purchased from leading vendors. Continuing efforts are made to assure adequate supplies to meet present and future sales objectives. The Company fills its needs by ordering from suppliers of long-standing relationship. The Company had engineering and research expense during 1996 of $7,842,000 compared to $7,813,000 in 1995 and $7,475,000 for 1994. These costs relate to the development of new products and to the improvement of existing products and services. These efforts are entirely company sponsored and involve eighty-four professional employees. The Company had no expenditures during the last three years for customer sponsored research relating to the development of new products, services, or techniques or the improvement of existing products, services, or techniques. In 1996, the Company continued its Stanfast manufacturing operations in twenty-seven print centers located nationwide. These print centers are devoted to the manufacture and sale of business forms for customers requiring relatively small quantities on a quick turnaround basis. -2- 3 Expenditures for property, plant and equipment totaled $57,783,000 in 1996, compared to $48,332,000 and $52,128,000 in 1995 and 1994, respectively. No significant changes occurred in the types of products, manufacture, or method of distribution during the past fiscal year nor does the Company intend to change its method of doing business in the near future. Other items of information which may be pertinent to an understanding of the Company and its business are as follows: 1.) The Company has several patents which provide a competitive advantage or which generate license income. None of these, individually, have a material effect upon the business. 2.) No material portion of the Company's business could be considered seasonal. 3.) The Company believes its working capital is sufficient for its current operations. The current ratio is 4.0 to 1 at December 29, 1996 as compared to 3.4 to 1 at December 31, 1995 and 3.6 to 1 at January 1, 1995. Total debt, including long-term and current maturities, was 1.0% of equity at year-end 1996, compared to 2.7% and 4.6% for years-end 1995 and 1994, respectively. At year-end 1996, cash, cash equivalents and short-term investments exceeded current and long-term debt by $61,165,000. These relationships demonstrate the soundness of the Company's financial position. 4.) No material segment of the Company's business is dependent upon a single or a few customers. No single customer accounts for 10% or more of total revenue. 5.) The Company's backlog of custom printing orders at December 29, 1996 was $47,733,000 compared to $53,817,000 and $69,173,000 at December 31, 1995 and January 1, 1995, respectively. The recent year's decline in backlog was attributable to the Company's successful efforts to offer faster turnaround of incoming orders, thereby improving customer service. All orders were expected to be filled within the ensuing fiscal year. 6.) The Company has no significant exposure with regard to the renegotiation or termination of government contracts. 7.) Expenditures made by the Company in order to comply with federal, state, or local provisions of environmental protection have not had a material effect upon the Company's capital expenditures, earnings, or competitive position. 8.) At December 29, 1996, the Company had 6,445 employees compared to 6,439 and 6,201 at December 31, 1995 and January 1, 1995, respectively. 9.) Substantially all of the Company's products and services facilitate the recording, storage and communication of business transactions and information. 10.) No material portion of the Company's sales or net income is derived from sales to foreign customers. The Company does offer technical assistance to foreign business forms manufacturers and receives royalties for these services. Royalties from these foreign associates are approximately .1% of total revenue. In 1994, the Company entered into a joint venture with Russian and Dutch partners to manufacture and market business forms in Russia. In exchange for a 41% share, the Company contributed a total of approximately $5.9 million in capital, equipment, and technological know-how. Due to various economic uncertainties, the Company has reduced the carrying value of this investment to $1.0 million as of December 29, 1996. -3- 4 EXECUTIVE OFFICERS OF THE REGISTRANT
Position and Offices Presently Officer Name Age Held and Business Experience Since ---- --- ---------------------------- ----- Alan L. Baughn 61 Vice President, Corporate Planning and Development, 1995 and Secretary. During his 40 year career with Standard Register, he gained sales, marketing, human resources and corporate planning management experience. His current responsibilities include planning, organizational development and acquisitions. Craig J. Brown 47 Senior Vice President, Administration, Treasurer and 1987 Chief Financial Officer. He joined Standard Register in 1986 and is now responsible for corporate finance, information services, human resources, and corporate communications. Brian W. Calabro 40 Vice President of Sales for the Document Management 1997 Division. He joined Standard Register in 1986 and has held a number of sales management positions, including General Sales Manager - National Accounts, prior to his recent appointment. H. Franklin Coffman 58 Vice President, Customer Service & Communications. 1995 He began his career with Standard Register in 1959 and has held a number of sales, marketing and operations management positions. He is responsible for corporate communications, marketing communications, employee safety and environmental affairs. John L. Crawford 61 Vice President, Internal Auditing. Mr. Crawford joined 1995 Standard Register 38 years ago and has held a number of finance and auditing positions. Reporting directly to the President, Mr. Crawford oversees operational auditing. James H. DeYoung 58 Vice President, International Operations. He joined 1995 Standard Register in 1966 and has held a number of engineering and research as well as management positions. He is responsible for establishing and maintaining relationships with Associates throughout the world. Peter A. Dorsman 42 Mr. Dorsman joined Standard Register in January, 1996 1996 as Senior Vice President and General Manager of the Document Systems Division. Prior to joining Standard Register, he served in a number of senior marketing, strategic planning, and sales management positions with NCR Corporation. Paul H. Granzow 69 Chairman of the Board of Directors. He was partner in 1984 the law firm of Turner, Granzow & Hollenkamp until December, 1983. He is co-trustee of the John Q. Sherman Trust and Senior Vice President and Director of the Weston Paper and Manufacturing Company.
-4- 5
Position and Offices Presently Officer Name Age Held and Business Experience Since ---- --- ---------------------------- ----- Peter S. Redding 58 President and Chief Executive Officer since December, 1981 1994. He is also a member of the Board of Directors. Previously, Mr. Redding served as Executive Vice President and Chief Operating Officer. He has held a number of marketing, sales, human resources and administrative positions since he joined the company in 1962. C. Thomas Russell 43 Vice President and Chief Information Officer. He 1995 is responsible for information services and the the development and marketing of electronic forms products and services. He was most recently a partner with a major management and software consulting firm. John E. Scarpelli 53 Vice President, Human Resources. He joined Standard 1995 Register in 1986 and is currently responsible for the development and administration of benefits, personnel policies, management training, and employee relations. Joseph V. Schwan 60 Senior Vice President and General Manager of the 1991 Document Management Division. He joined Standard Register in 1991 as Vice President, Sales and Marketing. He has more than 30 years of sales and general management experience in the business forms industry. Harry A. Siefert, Jr. 59 Vice President of Manufacturing for the Document 1987 Management Division. Since joining Standard Register in 1962, he has held a number of engineering and manufacturing positions. In his current role, he is responsible for research and development, purchasing and manufacturing operations. Michael Spaul 49 Senior Vice President and General Manager of the 1991 Communicolor Division. He joined Standard Register in 1986 and has held a number of manufacturing and engineering positions prior to assuming his current duties in 1988.
There are no family relationships among any of the officers. Officers are elected at the annual meeting of the Board of Directors, which is held immediately after the annual meeting of shareholders, for a term of office covering one year. -5- 6 ITEM 2 - PROPERTIES The principal production plants of the Company are located in the following cities: Dayton, Ohio, 677,000 sq. ft., printing and equipment products production plants and corporate headquarters Newark, Ohio, 234,000 sq. ft., promotional printing plant Eudora, Kansas, 120,000 sq. ft., promotional printing plant Shelbyville, Indiana, 61,000 sq. ft., printing plant Middlebury, Vermont, 113,000 sq. ft., printing plant York, Pennsylvania, 214,000 sq. ft., printing plant Fayetteville, Arkansas, 146,000 sq. ft., printing plant Porterville, California, 177,000 sq. ft., printing plant Cincinnati, Ohio, 52,000 sq. ft., pressure sensitive label production plant Murfreesboro, Tennessee, 82,000 sq. ft., printing plant Terre Haute, Indiana, 54,000 sq. ft., pressure sensitive label production plant Salisbury, Maryland, 114,000 sq. ft., printing plant and warehouse Rocky Mount, Virginia, 105,000 sq. ft., printing plant Kirksville, Missouri, 191,000 sq. ft., printing plant and warehouse Tampa, Florida, 38,000 sq. ft., pressure sensitive label production plant Spring Grove, Illinois, 100,000 sq. ft., printing plant Charlotte, North Carolina, 54,000 sq. ft., printing plant All plants are owned by the Company except for the Tampa location. The Company also operates twenty-seven Stanfast print centers which include five imaging service centers, located nationwide, and three imaging plants located in Tolland, Connecticut, Phoenix, Arizona, and Rochester, New York. These facilities are generally leased and are much smaller than the facilities listed above. In 1996, the plants operated at normal capacity levels. The Company has sufficient capacity to meet both present and future business forecasts through increased capacity utilization and additional new equipment. ITEM 3 - LEGAL PROCEEDINGS (a) No material claims or litigation are pending against the Company. (b) The Company has been named as a potentially responsible party by the U.S. Environmental Protection Agency or has received a similar designation by state environmental authorities in several situations. None of these matters have reached the stage where a significant liability has been assessed against the Company. The Company has evaluated each of these matters and believes that none of them individually, nor all of them in the aggregate, would give rise to a material charge to earnings or a material amount of capital expenditures. This assessment is notwithstanding the ability of the Company to recover on existing insurance policies or from other parties which the Company believes would be held as joint and several obligors under any such liabilities. However, since these matters are in various stages of process by the relevant environmental authorities, future developments could alter these conclusions. However, management does not now believe that there is a likelihood of a material adverse effect on the financial condition of the Company in these circumstances. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to shareholders during the fourth quarter of the fiscal year. -6- 7 PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (a) The common stock of the Registrant is traded on the New York Stock Exchange National Market under the symbol SR. Prior to May 14, 1996, the common stock was traded on the NASDAQ National Market under the symbol SREG. The range of high and low market prices and dividends paid per share for each quarterly period during the two most recent fiscal years are presented below.
1 9 9 6 - ----------------------------------------------------------------------------------------------------------- Cash Quarter Dividend High Low Last ------- -------- ---- --- ---- 1st $0.19 24-3/8 19 23-3/4 2nd $0.19 28-7/8 23-3/8 24-5/8 3rd $0.19 27-7/8 22-7/8 27-5/8 4th $0.19 32-1/2 25-3/8 32-1/2
1 9 9 5 - ----------------------------------------------------------------------------------------------------------- Cash Quarter Dividend High Low Last ------- -------- ---- --- ---- 1st $0.18 18-1/4 15-1/4 17-3/4 2nd $0.18 20-1/8 17-1/4 19 3rd $0.18 21-3/4 18-3/4 21-1/2 4th $0.18 23-3/8 19-1/2 20-1/8
(b) Approximate number of security holders of the Company's common stock as of February 21, 1997 - 3,300 excluding individual holders whose shares are held by nominees. There are also 16 holders of Class A stock. (c) Dividend policy - The Company expects to continue paying cash dividends in the future, however, the amounts paid will be dependent upon earnings and the future financial condition of the Company. No events have occurred which would indicate a curtailment of the payment of dividends. -7- 8 ITEM 6 - SELECTED FINANCIAL DATA Selected Income Statement Data - ------------------------------
1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Thousands except for per share data ---------------------------------------------------------------------- Revenue $943,979 $903,240 $767,415 $722,120 $705,215 Net income before cumulative effect of accounting changes 63,157 47,759 43,876 42,185 39,372 Cumulative effect of accounting changes - - - - (13,362) Net income 63,157 47,759 43,876 42,185 26,010 Earnings per share: Net income before cumulative effect of accounting changes 2.20 1.67 1.53 1.47 1.37 Cumulative effect of accounting changes - - - - (.47) Net income 2.20 1.67 1.53 1.47 .90 Selected Balance Sheet Data - --------------------------- Total assets $588,113 $555,503 $525,659 $502,333 $482,463 Long-term debt 4,600 4,600 11,071 17,546 24,454 Other - ----- Cash dividends paid per share .76 .72 .68 .64 .60
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: 1996 Compared to 1995 - --------------------------------------------- Net Income for 1996 was $63.2 million, 32.2 percent above 1995's $47.8 million result. Net Income Per Share was $2.20 vs. $1.67 in the prior year. There were two significant adjustments in 1996 that essentially offset one another: the write-down of the Company's investment in the Russian joint venture, equivalent to approximately $.13 per share after tax, and a favorable LIFO inventory adjustment related to lower paper prices, also $.13 per share. There was an unfavorable LIFO inventory adjustment in 1995 equivalent to $10.0 million after tax, or $.34 per share. Excluding the LIFO adjustments in both years and the Russian joint venture adjustment, Net Income was 9.7 percent higher. -8- 9 Paper prices played significant roles in both years' results. The most recent paper cycle began in June 1994 as the strengthening world-wide demand for all paper products and relatively high utilization rates at paper mills supported the first of many closely spaced price increases. By June 1995 the weighted average of all papers purchased by the Company had risen nearly 45 percent. Paper prices remained stable for the balance of 1995 and fell during the first four months of 1996, remaining at that level for the balance of the year despite several attempts at increases by the paper companies. Average paper prices in 1996 were 13 percent lower than in 1995 and 15 percent above 1994. At this writing, paper suppliers have announced price increases that would take effect April 1, 1997 increasing overall paper costs 3.0 percent. Revenue in 1996 was $944.0 million, 4.5 percent above the $903.2 million reported for 1995. The largest of the Company's divisions, Document Management, reported $746.6 million in revenue, an 8.2 percent increase over 1995. Unit growth for the division was approximately 3.0 percent with forms prices 5.0 percent higher, lower paper prices notwithstanding. Within this division, traditional business form products grew about one percent, while Pressure Sensitive, Imaging Services, Stanfast, Distribution Services, and Electronic Services Groups produced a 22.0 percent overall increase. These latter groups, formed in recent years to exploit document related growth opportunities, represented nearly 40 percent of the Division's 1996 revenue. The Communicolor Division, a producer of promotional direct mail, reported revenue of $101.6 million, 11.6 percent below the 1995 result. This reduction reflects fewer mailings by many of Communicolor's customers, lower paper prices, and new competition from commercial printers equipped with high resolution imagers. Printing and imaging capacity added during 1996 was not fully utilized, producing lower operating margins. Management expects improved results in 1997 as a result of increased mailings by major customers, expanded feature offerings, and sales initiatives. The Document Systems Division generated revenue of $91.5 million, down 1.4 percent compared to 1995's $92.8 million. Revenue from supplies was up 11.4 percent, but new equipment installations declined 2.3 percent and maintenance revenue was 5.5 percent below the prior year. The reduction in equipment revenue reflects a product rationalization currently underway as part of the Division's plan to focus primarily on intelligent printing applications. The drop in maintenance revenue reflects the pruning of unprofitable accounts, which produced a 4.0 percent increase in gross margin dollars despite the lower revenue. The Company's profit improvement was most evident at the gross margin line. The gross margin for all products and services was 39.1 percent of revenue in 1996, compared to 35.3 percent for 1995. Excluding the effects of LIFO inventory adjustments in each of the years, the operating gross margin improved from 37.2 percent to 38.4 percent, reflecting a favorable product mix, lower paper costs, and the retention of some of the forms pricing gains made during 1995. Selling, administrative, and engineering expenses totaled $225.5 million in 1996, 8.1 percent above the 1995 level. 1996's operating expenses included the $4.9 million charge related to the Russian joint venture, approximately $2.8 million in Electronic Services Group start-up costs, $2.7 million in roll-out costs for the Company's new order entry system, and $2.5 million for added sales support. Depreciation and amortization increased from $29.3 million in 1995 to $34.8 million in 1996, primarily as a result of higher capital spending in the last two years. The increase in the income tax rate from 40.5 percent in 1995 to 41.4 percent in 1996 can be attributed to the Russian charge. The majority of this charge was recorded as a capital loss which, in the absence of an offsetting capital gain, did not permit a corresponding reduction in the tax provision. The Company expects the 1997 tax rate to be similar to that in 1995. -9- 10 Results of Operations: 1995 Compared to 1994 - --------------------------------------------- Net Income in 1995 was $47.8 million, an 8.8 percent increase compared to the $43.9 million result reported for 1994. On an operating basis, excluding the effect of unfavorable LIFO inventory adjustments in both years, Net Income was up 28.0 percent. The growth in operating profits was driven primarily by increased revenue, up 17.7 percent overall. All operating divisions posted revenue gains in 1995, led by Communicolor's 31.3 percent rise and the Document Management Division's 17.1 percent increase. Revenues from Advanced Medical Systems and Document System Divisions were up 13.0 percent and 6.7 percent, respectively. Within the Document Management Division, the traditional business forms products of custom continuous, unit sets, and stock forms played a decreasing role, up 11.4 percent overall. In contrast, revenue from Pressure Sensitive, Imaging Services, Stanfast, Distribution Services, and Electronic Products Groups rose 18.7 percent. Communicolor operated at near capacity for much of 1995, reflecting strong demand for personalized, high-color promotional mail. Approximately one-half of the division's 31.3 percent revenue increase was a result of the 1994 acquisition of Promotional Graphics; unit growth is estimated at 6.0 percent, with the balance attributed to higher net selling prices needed to recover increased paper costs. The January 1, 1995 rise in third-class postal rates did not have a material adverse effect on the division's revenue. The Document Systems Division reported overall revenue growth of 6.7 percent. The bulk of the growth occurred in the supplies and service segments, up 17.1 percent and 7.4 percent, respectively. Revenue from new equipment installations rose 1.2 percent. Paper accounts for approximately one-half of the printing cost of a typical business document. The aforementioned increase in paper costs pushed 1995's average price 32.0 percent above that for 1994. In response, the Company raised the prices of its printed documents during 1994 and 1995 and was generally successful in recovering the higher paper costs. A significant share of the Company's 1995 revenue increase can be attributed to higher paper prices. The rise in paper costs also produced unfavorable after-tax LIFO inventory adjustments of $10.0 million or $.34 per share in 1995 and $1.1 million or $.04 per share in 1994. The gross margin for all products and services was 35.3 percent of revenue in 1995, compared to 36.7 percent for 1994. However, on an operating basis, excluding the effects of LIFO adjustments in each year, the gross margin improved from 37.0 percent in 1994 to 37.2 percent in 1995. This result indicated that the Company was able to maintain its margins despite the rapid escalation in paper costs. Total 1995 operating expenses were 14.5 percent higher than in 1994. Engineering and Research expenditures were 4.5 percent higher. Selling and Administrative expenses were 15.1 percent above the 1994 level, reflecting higher sales commissions, the cost of the Traveler's Express settlement, legal costs related to the successful defense of two document security patents, and increased sales support expenses; excluding these items, this category of expense was up 6.0 percent. Depreciation increased 13.9 percent as a result of higher capital spending and the acquisitions of Promotion Graphics and FCA. Interest expenses declined as the Company continued to pay down its outstanding debt. The effective income tax rate was 40.5 percent, up slightly from the 39.8 percent rate for the previous year as a result of increases in several non-deductible expense items. -10- 11 Advanced Medical Systems recorded a pretax operating loss of $1.2 million in 1995. This loss compares to losses in 1994 and 1993 of $2.8 million and $5.2 million, respectively. 1995's improved result was attributed to new software installations, which pushed revenue higher, and lower operating expenses. In the final analysis, two factors stand out in explaining 1995's improvement in Net Income: the growth of higher value-added, higher margin products and services, and the Company's ability to recover the increases in paper costs. Environmental Matters - --------------------- The Company has been named as one of a number of potentially responsible parties at several waste disposal sites, none of which has ever been Company owned. The Company has accrued for investigation and remediation at sites where costs are probable and estimable. At this writing, there are no identified environmental liabilities that are expected to have a material adverse effect on the operating results or financial condition of the Company. Liquidity and Capital Resources - ------------------------------- For 1996, cash flow from operating activities was $115.2 million, approximately twice the level of 1995, reflecting higher profitability and improved inventory and accounts receivable management. The operating cash flow was sufficient to fund $57.8 million in capital expenditures and $21.8 million in dividends, both record expenditures. The Company also retired its term loan, making $6.5 million in debt payments during the year. Free cash flow was $30.9 million, pushing the year-end cash balance to $64.6 million; total debt at year-end was $4.6 million. Capital expenditures in 1997 are estimated at $55 million. The Company expects to finance its 1997 needs for working capital, capital expenditures, and dividends through a combination of internally generated funds and cash reserves. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Page Independent Auditors' Report 16 Balance Sheet - December 29, 1996 and December 31, 1995 17-18 Statement of Income - Years ended December 29, 1996, December 31, 1995 and January 1, 1995 19 Statement of Shareholders' Equity - Years ended December 29, 1996, December 31, 1995 and January 1, 1995 20 Statement of Cash Flows - Years ended December 29, 1996, December 31, 1995 and January 1, 1995 21 Notes to Consolidated Financial Statements 22-30 Quarterly Results of Operations 30 Index to Financial Statement Schedule, years ended December 29, 1996, December 31, 1995 and January 1, 1995 II. Valuation and Qualifying Accounts 31
All other schedules have been omitted because the information is not applicable or is not material or because the information required is included in the financial statements or the notes thereto. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None -11- 12 PART III Items 10, 11, 12 and 13 are incorporated by reference from the Company's Proxy Statement for the 1997 Annual Meeting of shareholders. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1 and 2. Financial statements and financial statement schedule The financial statements and financial statement schedule are listed in the accompanying index to financial statements on page 11 and are filed as Exhibit 13 to this Form 10-K. 3. Exhibits The exhibits as listed on the accompanying index to exhibits on page 14 are filed as part of this Form 10-K. (b) Reports on Form 8-K for the quarter ended December 29, 1996 The Company filed no current reports on Form 8-K during the quarter ended December 29, 1996. -12- 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, The Standard Register Company has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 21, 1997. THE STANDARD REGISTER COMPANY By: /S/ P. S. Redding --------------------------- P. S. Redding, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of The Standard Register Company and in the capacities indicated on March 21, 1997: Signatures Title ---------- ----- /S/ P. H. Granzow Chairman of the Board and Director - ------------------------- P. H. Granzow /S/ C. J. Brown Senior Vice-President - Administration, Treasurer - ------------------------- and Chief Financial Officer C. J. Brown P. H. Granzow, pursuant to power of attorneys which are being filed with this Annual Report on Form 10-K, has signed below on March 21, 1997 as attorney-in-fact for the following directors of the Registrant: R. W. Begley, Jr. D. L. Rediker F. D. Clarke III A. Scavullo G. G. Keeping J. J. Schiff, Jr. P. S. Redding C. F. Sherman J. Q. Sherman II /S/ P. H. Granzow ------------------------- P. H. Granzow -13- 14 INDEX TO EXHIBITS 3. Amended Articles of Incorporation of the Company and Code of Regulations, Filed as Exhibit 4 to the Company's Registration Statement No. 33-8687. 3.1 Certificate of Amendment by the Shareholders to the Amended Articles of Incorporation of The Standard Register Company filed as exhibit to Form 10-K for year ended December 31, 1995. 10. Material contracts - management compensatory plans. 10.1 The Standard Register Company Key Employees Incentive Plan. Incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Shareholders held on April 26, 1976. 10.2 The Standard Register Company Stock Incentive Plan. Incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Shareholders held on April 19, 1978. 10.3 The Standard Register Company Non-Qualified Retirement Plan filed as exhibit to Form 10-K for year ended January 2, 1994. 10.4 The Standard Register Company Officers' Supplemental Non-Qualified Retirement Plan filed as exhibit to Form 10-K for year ended January 2, 1994. 10.5 The Standard Register Company Amended and Restated Stock Incentive Plan filed as exhibit to Form 10-K for year ended January 2, 1994. 10.6 The Standard Register Company Incentive Stock Option Plan. Incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Shareholders held on April 17, 1996. 11. Computation of Earnings Per Share. 13. Financial Statements and Financial Statement Schedule 23. Consent of Independent Auditors 24. Power of Attorney of R. W. Begley, Jr., F. D. Clark III, G.G. Keeping, P. S. Redding, D. L. Rediker, A. Scavullo, J. J. Schiff, Jr., C. F. Sherman, J. Q. Sherman II. 27. Financial Data Schedule (EDGAR version). -14- EX-11 2 EXHIBIT 11 1 EX-11 THE STANDARD REGISTER COMPANY COMPUTATION OF EARNINGS PER SHARE (Dollars in thousands except for shares and per share amounts)
1996 1995 1994 ---- ---- ---- Average shares outstanding 28,686,480(1) 28,652,525(2) 28,681,045(3) ============== ============== =========== Net income $ 63,157 $ 47,759 $ 43,876 ============== ============== =========== Primary income per share: Net income $ 2.20 $ 1.67 $ 1.53 ============== ============== =========== (1) Includes 55,555 shares of common stock issued in 1996 under the Company's Stock Incentive Plan, 7,079 shares of common stock issued in 1996 under the Company's Dividend Reinvestment and Common Stock Purchase Plan, and repurchase of 12,040 shares during the year. (2) Includes 57,126 shares of common stock issued in 1995 under the Company's Stock Incentive Plan and repurchase of 25,705 shares during the year. (3) Includes 47,836 shares of common stock issued in 1994 under the Company's Stock Incentive Plan and repurchase of 111,655 shares during the year.
-15- EX-13 3 EXHIBIT 13 1 Exhibit 13 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders The Standard Register Company Dayton, Ohio We have audited the accompanying balance sheet of The Standard Register Company as of December 29, 1996 and December 31, 1995, and the related statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 29, 1996. Our audits also included the financial statement schedules listed in Item 14(a)(2). These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Standard Register Company as of December 29, 1996 and December 31, 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /S/ BATTELLE & BATTELLE LLP BATTELLE & BATTELLE LLP Certified Public Accountants 3400 S. Dixie Drive Dayton, Ohio January 23, 1997 -16- 2 THE STANDARD REGISTER COMPANY BALANCE SHEET (DOLLARS IN THOUSANDS)
December 29 December 31 A S S E T S 1996 1995 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ 64,550 $ 33,646 Investments held to maturity 1,215 1,330 Accounts receivable, less allowance for losses of $3,638 and $3,913, respectively 178,711 181,709 Inventories 86,152 97,817 Deferred income taxes 8,206 10,611 Prepaid pension expense 952 -- Prepaid other expense 5,201 3,878 -------- -------- Total current assets 344,987 328,991 -------- -------- PLANT AND EQUIPMENT Buildings and improvements 61,711 57,340 Machinery and equipment 224,702 212,221 Office and rental equipment 60,894 43,945 -------- -------- Total 347,307 313,506 Less accumulated depreciation 141,021 127,871 -------- -------- Depreciated cost 206,286 185,635 Plant and equipment under construction 26,160 27,027 Land 3,512 3,312 -------- -------- Total plant and equipment 235,958 215,974 -------- -------- OTHER ASSETS 7,168 10,538 -------- -------- Total assets $588,113 $555,503 ======== ========
See accompanying notes. -17- 3 THE STANDARD REGISTER COMPANY BALANCE SHEET (DOLLARS IN THOUSANDS)
December 29 December 31 LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 --------- ----------- CURRENT LIABILITIES Accounts payable $ 20,225 $ 19,025 Dividends payable 5,738 5,441 Accrued compensation 34,355 31,973 Accrued pension expense -- 2,886 Accrued other expense 5,536 6,774 Accrued taxes, except income 5,902 5,140 Income taxes payable 2,624 2,534 Customer deposits 4,185 8,334 Deferred service contract income 7,274 8,455 Current maturities of long-term debt -- 6,471 --------- --------- Total current liabilities 85,839 97,033 --------- --------- LONG-TERM LIABILITIES Long-term debt 4,600 4,600 Retiree health care obligation 27,643 26,101 Deferred income taxes 16,785 16,552 --------- --------- Total long-term liabilities 49,028 47,253 --------- --------- SHAREHOLDERS' EQUITY Common stock, $1.00 par value: Authorized 50,500,000 shares Issued 1996 - 24,204,392; 1995 - 24,141,758 24,204 24,142 Class A stock, $1.00 par value: Authorized 4,725,000 shares Issued - 4,725,000 4,725 4,725 Capital in excess of par value 28,705 27,450 Retained earnings 400,387 359,334 Cost of common shares in treasury: 1996 - 239,486 shares; 1995 - 227,446 shares (4,775) (4,434) --------- --------- Total shareholders' equity 453,246 411,217 --------- --------- Total liabilities and shareholders' equity $ 588,113 $ 555,503 ========= =========
See accompanying notes. -18- 4 THE STANDARD REGISTER COMPANY STATEMENT OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended December 29 December 31 January 1 1996 1995 1995 -------------- -------------- -------------- REVENUE $943,979 $ 903,240 $767,415 -------- --------- -------- COST AND EXPENSE Cost of products sold 575,316 584,088 485,738 Engineering and research 7,842 7,813 7,475 Selling and administrative 217,671 200,812 174,435 Depreciation and amortization 34,814 29,326 25,755 Interest 532 974 1,090 -------- --------- -------- Total cost and expense 836,175 823,013 694,493 -------- --------- -------- INCOME BEFORE INCOME TAXES 107,804 80,227 72,922 -------- --------- -------- INCOME TAXES Current 42,009 32,752 27,129 Deferred 2,638 (284) 1,917 -------- --------- -------- Total income taxes 44,647 32,468 29,046 -------- --------- -------- NET INCOME $ 63,157 $ 47,759 $ 43,876 ======== ========= ======== DATA PER SHARE Net income $ 2.20 $ 1.67 $ 1.53 ======== ========= ========
See accompanying notes. -19- 5 THE STANDARD REGISTER COMPANY STATEMENT OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended December 29 December 31 January 1 1996 1995 1995 -------------- -------------- -------------- COMMON STOCK Beginning balance $ 24,142 $ 24,085 $ 24,037 Add shares issued under: Stock Incentive Plan 55 57 48 Dividend Reinvestment Plan 7 -- -- --------- --------- --------- Ending balance 24,204 24,142 24,085 --------- --------- --------- CLASS A STOCK 4,725 4,725 4,725 --------- --------- --------- CAPITAL IN EXCESS OF PAR VALUE Beginning balance 27,450 26,507 25,562 Add excess of market over par value of shares issued under: Stock Incentive Plan 1,062 943 945 Dividend Reinvestment Plan 193 -- -- --------- --------- --------- Ending balance 28,705 27,450 26,507 --------- --------- --------- RETAINED EARNINGS Beginning balance 359,334 332,501 308,413 Add net income for year 63,157 47,759 43,876 Less cash dividends declared (22,104) (20,926) (19,788) --------- --------- --------- Ending balance 400,387 359,334 332,501 --------- --------- --------- TREASURY SHARES Beginning balance (4,434) (3,852) (1,754) Cost of common shares purchased (341) (582) (2,098) --------- --------- --------- Ending balance (4,775) (4,434) (3,852) --------- --------- --------- Total shareholders' equity $ 453,246 $ 411,217 $ 383,966 ========= ========= =========
See accompanying notes. -20- 6 THE STANDARD REGISTER COMPANY STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended December 29 December 31 January 1 1996 1995 1995 -------------- -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 63,157 $ 47,759 $ 43,876 -------- -------- -------- Add (deduct) items not affecting cash: Depreciation and amortization 34,814 29,326 25,755 Loss (gain) on sale of assets 1,508 (1,309) 255 Loss on other investments 4,383 830 -- Provision for deferred income taxes 2,638 (284) 1,917 Increase (decrease) in cash arising from changes in assets and liabilities: Accounts receivable 2,998 (29,757) (16,885) Inventories 11,665 2,856 (2,425) Other assets (2,494) 202 (1,738) Accounts payable and accrued expenses 1,762 8,159 (2,150) Income taxes payable 90 256 (2,483) Customer deposits (4,149) (1,473) 9,807 Deferred income (1,181) 1,095 720 -------- -------- -------- Net adjustments 52,034 9,901 12,773 -------- -------- -------- Net cash provided by operating activities 115,191 57,660 56,649 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of plant and equipment 1,692 3,330 28 Additions to plant and equipment (57,783) (48,332) (52,128) Purchase of held-to-maturity investments -- (1,330) -- Maturity of held-to-maturity investments 115 -- -- Additions to patents -- (675) -- Additions to other investments (1,008) (5,555) (1,215) -------- -------- -------- Net cash used in investing activities (56,984) (52,562) (53,315) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (6,471) (6,471) (6,475) Proceeds from issuance of common stock 1,317 1,000 993 Purchase of common stock (341) (582) (2,098) Dividends paid (21,808) (20,634) (19,513) -------- -------- -------- Net cash used in financing activities (27,303) (26,687) (27,093) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,904 (21,589) (23,759) Cash and cash equivalents at beginning of year 33,646 55,235 78,994 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 64,550 $ 33,646 $ 55,235 ========= ======== ======== SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid during the year for: Interest $ 565 $ 999 $ 1,085 Income taxes $ 42,115 $ 32,496 $ 29,612 Non-cash investing activities: Transfer of equipment to joint venture $ - $ - $ 1,757 Note receivable from sale of assets $ 650 $ - $ -
See accompanying notes. -21- 7 THE STANDARD REGISTER COMPANY NOTES TO FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Standard Register Company is a leading domestic supplier of business forms, pressure sensitive labels, business equipment, direct mail marketing materials and application software. The Company markets its products and services through a direct sales organization located in offices throughout the United States. The Company operates in a single industry segment - providing products and services that facilitate the recording, storage and communication of business transactions and information. The accounting policies that affect the more significant elements of the financial statements are summarized below. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. FISCAL YEAR - The Company's fiscal year ends on the Sunday nearest to December 31. Each of the fiscal years ending December 29, 1996, December 31, 1995 and January 1, 1995 had 52 weeks. CASH EQUIVALENTS - The Company classifies as cash equivalents all highly liquid investments with an original maturity of three months or less. These are primarily composed of repurchase agreements, municipal notes and bond funds, which are convertible to a known amount of cash and carry an insignificant risk of change in value. Cash equivalents are valued at cost plus accrued interest which also approximates market value. INVESTMENTS HELD TO MATURITY - The Company invests a portion of its available funds into government and corporate debt securities with maturities in excess of three months. It is the Company's intent to hold these investments to maturity. INVENTORIES - Inventories are valued at the lower of cost or market. Substantially all inventory costs are determined by the last-in, first-out (LIFO) method. Printed finished products include forms stored for future shipment and invoicing to customers. PLANT AND EQUIPMENT - These assets are stated at cost less accumulated depreciation. Costs of normal maintenance and repairs are charged to expense when incurred. When the assets are retired or otherwise disposed of, their cost and related depreciation are removed from the respective accounts and the resulting gain or loss is included in current income. -22- 8 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEPRECIATION - For financial statement purposes, depreciation is computed by the straight-line method over the expected useful lives of the depreciable assets. Depreciation expense was $34,601,000 in 1996, $29,143,000 in 1995, and $25,535,000 in 1994. Estimated asset lives are:
Classification Years -------------- ----- Buildings and improvements 10-40 Machinery and equipment 5-15 Office equipment 5-15 Rental equipment 3-4
OTHER INVESTMENTS - The Company uses the equity method of accounting for its investment in a corporate joint venture in St. Petersburg, Russia. The equity method is also used for the Company's 35% equity investment in F3 Software Corporation based in Boston, Massachusetts. INCOME TAXES - The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial and tax bases, using enacted rates. REVENUE RECOGNITION - The Company generally recognizes product and related services revenue at the time of shipment. Under contractual arrangements with some customers, custom forms which are stored for future delivery are recognized as revenue when manufacturing is complete and the order is invoiced. Revenue from equipment service contracts is recognized ratably over the term of the contract. NET INCOME PER SHARE - Income per share is calculated using the weighted average number of shares outstanding during the year. Shares issuable under common stock options have been excluded from the computations because their inclusion would have no material dilutive effect. The weighted average number of shares outstanding for fiscal years 1996, 1995 and 1994 were 28,686,480, 28,652,525 and 28,657,327, respectively. IMPAIRMENT OF LONG-LIVED ASSETS - Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's adoption of this standard for 1996 had no material effect on the financial statements. ACCOUNTING FOR STOCK OPTIONS - Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," is effective for the Company's 1996 fiscal year. This new standard establishes an accounting method based on the fair value of equity instruments awarded to employees as compensation. As permitted by the new standard, the Company has elected to continue following the guidance of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" for measurement and recognition of stock-based transactions with employees by disclosing, in the notes to the financial statements, the differences between this method and the method formulated by the new accounting standard. -23- 9 NOTE 2 - INVENTORIES Inventories are valued at the lower of cost or market determined by the last-in, first-out (LIFO) method. If the first-in, first-out method had been used, these inventories would have been $34,885,000 higher at December 29, 1996 and $41,269,000 higher at December 31, 1995. Inventories at the respective year-ends are as follows:
(Dollars in thousands) December 29 December 31 1996 1995 ----------- ----------- Finished products $55,449 $57,150 Jobs in process 18,573 24,953 Materials and supplies 12,130 15,714 ------- ------- Total $86,152 $97,817 ======= =======
NOTE 3 - PENSION PLANS The Company has qualified defined benefit plans covering substantially all of its employees. The benefits are based on years of service and the employee's compensation at the time of retirement, or years of service and a benefit multiplier. The Company funds its pension plans based on allowable federal income tax deductions. Contributions are intended to provide not only for benefits attributed to service to date but also for benefits expected to be earned in the future. In addition, the Company has non-qualified plans which provide benefits in addition to those provided in the qualified plans. Assumptions used in the respective accounting years to determine pension costs, are as follows:
1996 1995 1994 ---- ---- ---- Discount rate 8.5% 8.5% 8.5% Rate of increase in compensation levels 5.0% 4.0% 4.5% Expected long-term rate of return on assets 10.5% 9.5% 10.5% Pension costs consist of the following components: (Dollars in thousands) 1996 1995 1994 ---- ---- ---- Service cost of benefits earned $ 5,734 $ 4,776 $ 5,055 Interest cost on projected benefit obligation 12,431 10,573 10,031 Actual gain on plan assets (22,507) (24,657) (3,927) Asset gain (loss) deferred 10,074 14,691 (6,265) Amortization of transition asset (605) (722) (722) Amortization of prior service costs 1,950 1,898 1,832 Amortization of net loss from prior periods 62 -- -- -------- -------- -------- Net pension cost $ 7,139 $ 6,559 $ 6,004 ======== ======== ========
-24- 10 NOTE 3 - PENSION PLANS (CONTINUED) The following table sets forth the plans' funded status and amounts recognized in the Company's balance sheet at the respective year ends.
December 29, 1996 December 31, 1995 ----------------------------- ------------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed (Dollars in thousands) Benefits Assets Benefits Assets ----------- ----------- ----------- ----------- Actuarial present value of: Accumulated benefit obligation Vested $ 115,115 $ 3,050 $ 107,945 $ 1,921 Non-vested 8,724 390 8,975 357 --------- ------- --------- ------- Total $ 123,839 $ 3,440 $ 116,920 $ 2,278 ========= ======= ========= ======= Projected benefit obligation $ 155,513 $ 6,421 $ 145,262 $ 4,922 ========= ======= ========= ======= Plan assets at fair value $ 150,857 $ -- $ 128,871 $ -- ========= ======= ========= ======= Plan assets (less than) projected benefit obligation (4,656) (6,421) (16,391) (4,922) Unrecognized net loss 61 1,806 6,190 1,116 Unrecognized prior service cost 9,227 1,670 10,437 1,901 Minimum liability adjustment -- (495) -- (372) Unrecognized transition asset (240) -- (845) -- --------- ------- --------- ------- Prepaid (accrued) pension cost $ 4,392 ($3,440) ($ 609) ($2,277) ========= ======= ========= ======= Net asset (liability) recognized in balance sheet $ 952 ($2,886) ========= =======
Pension fund assets are invested in a broadly diversified portfolio consisting primarily of publicly-traded common stocks and fixed income securities. NOTE 4 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to providing pension benefits, the Company provides health care benefits for eligible employees who retired prior to July 1, 1992. The components of postretirement benefit costs are as follows:
(Dollars in thousands) 1996 1995 1994 ------ ------ ------ Service cost -- -- -- Interest cost $2,728 $2,495 $2,333 Amortization of net loss from prior periods 266 143 84 ------ ------ ------ Postretirement benefit cost $2,994 $2,638 $2,417 ====== ====== ======
The funding policy is to pay claims as they occur. Payments for postretirement health benefits, net of retiree contributions, amounted to $1,452,000, $1,662,000 and $1,773,000 in 1996, 1995, and 1994, respectively. -25- 11 NOTE 4 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED) The funded status of the plan at December 29, 1996 and December 31, 1995 is as follows:
(Dollars in thousands) December 29 December 31 1996 1995 ----------- ----------- Accumulated postretirement benefit obligation for retirees $29,182 $33,139 Plan assets -- -- ------- ------- Accumulated postretirement benefit obligation in excess of plan assets 29,182 33,139 Unrecognized net loss (1,539) (7,038) ------- ------- Retiree health care obligation shown in balance sheet $27,643 $26,101 ======= =======
The accumulated benefit obligation was determined using the unit credit method and an assumed discount rate of 8.5%. The assumed current health care cost trend rate is 10.7% in 1996 and gradually decreases to 6.5% in the year 2014. A one percent increase in the health care cost trend rates used would result in a $341,000 increase in the service and interest components of expense for 1996 ($332,000 for 1995) and a $3,503,000 increase in the postretirement benefit obligation at December 29, 1996 ($4,016,000 increase at December 31, 1995). NOTE 5 - LONG-TERM DEBT Long-term debt consists of the following:
(Dollars in thousands) December 29 December 31 1996 1995 ----------- ----------- Unsecured term notes dated December 9, 1986, bearing interest at 6.1875%, payable to: The First National Bank of Boston $3,647 Wachovia Bank and Trust Co. 1,412 KeyBank 1,412 ------- Total 6,471 Industrial development revenue bonds issued by Rutherford County, Tenn., bearing interest at 6-1/8%, due 1999 through 2003 $4,600 4,600 ------ ------- Total 4,600 11,071 Less current maturities -- 6,471 ------ ------- Long-term debt $4,600 $ 4,600 ====== =======
The aggregate principal payments for the five fiscal years subsequent to December 29, 1996, are as follows: 1997 - None; 1998 - None; 1999 - $525; 2000 - $555; 2001 - $590. -26- 12 NOTE 6 - INCOME TAXES The provision for income taxes consists of the following:
(Dollars in thousands) 1996 1995 1994 ------- ------- ------- Current Federal $33,285 $26,386 $21,765 State and local 8,724 6,366 5,364 Deferred 2,638 (284) 1,917 ------- ------- ------- Total $44,647 $32,468 $29,046 ======= ======= =======
The significant components of the deferred tax expense (benefit) are as follows:
(Dollars in thousands) 1996 1995 1994 ---- ---- ---- Depreciation $ 853 $ 1,128 $ 877 Pension 1,712 391 885 Inventories 267 976 729 Compensation and benefits (33) (1,331) (461) Allowance for doubtful accounts 111 (690) 138 Retiree health care benefits (620) (393) (228) Patent litigation 403 (403) -- Other (55) 38 (23) ------- ------- ------- Total $ 2,638 ($ 284) $ 1,917 ======= ======= =======
The components of the net deferred tax asset and liability as of December 29, 1996 and December 31, 1995 are as follows:
(Dollars in thousands) December 29 December 31 1996 1995 ----------- ----------- Deferred tax asset: Allowance for doubtful accounts $ 1,465 $ 1,576 Inventories 2,634 2,901 Compensation and benefits 4,696 4,663 Pension (700) 1,012 Patent litigation -- 403 Other 111 56 -------- -------- $ 8,206 $ 10,611 ======== ======== Deferred tax liability: Depreciation $ 27,915 $ 27,062 Retiree health care benefits (11,130) (10,510) -------- -------- $ 16,785 $ 16,552 ======== ========
The reconciliation of the statutory federal income tax rate and the effective tax rate follows: C 1996 1995 1994 ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 35.0% State and local income taxes 5.3 5.3 5.3 Other 1.1 .2 (.5) ---- ---- ---- Effective tax rate 41.4% 40.5% 39.8% ==== ==== ====
-27- 13 NOTE 7 - CAPITALIZATION The Company has two classes of capital stock issued and outstanding, Common and Class A. These are equal in all respects except voting rights and restrictions on ownership of the Class A. Each of the 23,964,906 shares of Common outstanding has one vote, while each of the 4,725,000 shares of Class A is entitled to five votes. Class A stock is convertible into Common stock on a share-for-share basis at which time ownership restrictions are eliminated. NOTE 8 - STOCK OPTION PLAN During 1995, the Company adopted a stock option plan authorizing the issuance of options for 2,000,000 shares of common stock to selected employees. Under the terms of the plan, options may be either incentive or non-qualified. The exercise price per share, determined by a committee of the Board of Directors, may not be less than the fair market value on the grant date. In April 1996, the Company's shareholders ratified the initial grant on December 30, 1995 of 550,000 options with an exercise price of $20.125 per share. The options become exercisable, subject to continued employment, at the rate of 20% per year beginning one year after the grant date. The options have a term of ten years. An additional 231,000 options were granted on December 28, 1996 with an exercise price of $32.375 per share. The Company applies APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its stock option plan. Accordingly, no compensation cost has been recognized in the Company's financial statements. Had compensation cost for the Company's stock option plan been determined based on the fair value of such awards at the grant date, consistent with the methods of Financial Accounting Standards Board Statement No. 123 "Accounting for Stock-Based Compensation", the Company's total and per share net income would have been as follows:
(Dollars in thousands except per share amounts) 1996 1995 ---- ---- Net income As reported $ 63,157 $ 47,759 Pro forma 62,512 47,759 Net income per share As reported $ 2.20 $ 1.67 Pro forma 2.18 1.67
The fair values of options granted at December 28, 1996 and December 30, 1995 were estimated at $10.37 and $6.12 per share, respectively, using the Black-Scholes option-pricing model based on the following assumptions:
1996 1995 ---- ---- Risk-free interest rate 6.2% 5.4% Dividend yield 2.0% 2.0% Expected life 5 years 5 years Expected volatility 31.5% 31.2%
-28- 14 NOTE 8 - STOCK OPTION PLAN (CONTINUED) A summary of the status of the Company's stock option plan as of December 29, 1996 is as follows:
1996 1995 --------------------------- ---------------------------- Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- Outstanding, beginning of year 550,000 $ 20.125 - - Granted 231,000 32.375 550,000 $20.125 Exercised - - - - Canceled (5,000) 20.125 - - ------- ------- Outstanding, end of year 776,000 550,000 ======= ======= Options exercisable at end of year 109,000 $20.125 - - ======= =======
NOTE 9 - COMMITMENTS AND CONTINGENCIES Purchase commitments for capital improvements aggregated $7,066,000 at December 29, 1996. Also, the Company has purchase commitments for equipment for resale of $1,448,000 at December 29, 1996. In addition, the Company has entered into several agreements with suppliers to purchase specified minimum quantities of raw materials through 1997. The Company is obligated under several leases expiring at various dates. Annual expense under these leases was $23,320,000 in 1996, $21,692,000 in 1995 and $18,233,000 in 1994. Rental commitments under existing leases at December 29, 1996, are:
Computer and (Dollars in Real Sales Transportation Other thousands) Estate Offices Equipment Equipment Total ------ ------- --------- --------- ----- 1997 $ 5,802 $ 7,503 $ 246 $ 2,103 $ 15,654 1998 4,804 5,537 219 1,635 12,195 1999 3,686 3,787 204 982 8,659 2000 2,673 2,391 84 421 5,569 2001 1,179 1,218 84 41 2,522 Later years 189 340 529
In the opinion of management, no litigation or claims, including proceedings under governmental laws and regulations related to environmental matters, are pending against the Company which will have an adverse material effect on its financial condition. NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
December 29, 1996 December 31, 1995 ----------------------- ---------------------- Fair Carrying Fair Carrying (Dollars in thousands) Value Amount Value Amount -------- -------- -------- -------- Assets Cash and equivalents $ 64,550 $ 64,550 $ 33,646 $ 33,646 Investments held to maturity 1,215 1,215 1,330 1,330 Liabilities Long-term debt including current maturities 4,654 4,600 11,156 11,071
Investments held to maturity are carried at cost which approximates market. The fair value of all financial instruments is based upon similarly marketed securities. -29- 15 NOTE 11 - CONCENTRATION OF CREDIT RISK The Company's concentration of credit risk with respect to trade receivables are, in management's opinion, limited due to industry and geographic diversification. As disclosed on the balance sheet, the Company maintains an allowance for doubtful accounts to cover estimated credit losses. NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data, in thousands of dollars except for per share amounts, follow:
Quarters Ended ------------------------------------------------- March 31 June 30 September 29 December 29 1996 1996 1996 1996 -------- -------- -------- ---------- Revenue $229,673 $239,352 $230,853 $244,101 Gross margin* 85,290 91,644 91,435 100,294 Net income 13,563 16,086 16,065 17,443 Net income per share .47 .56 .56 .61 Quarters Ended ------------------------------------------------- April 2 July 2 October 1 December 31 1995 1995 1995 1995 -------- -------- -------- ------------ Revenue $204,499 $222,523 $227,922 $248,296 Gross margin* 74,509 77,090 78,455 89,098 Net income 10,781 12,041 11,718 13,219 Net income per share .38 .42 .41 .46 Quarters Ended ------------------------------------------------- April 3 July 3 October 2 January 1 1994 1994 1994 1995 -------- -------- -------- ---------- Revenue $183,875 $184,306 $190,008 $209,226 Gross margin* 67,617 69,500 69,629 74,931 Net income 10,016 10,560 10,307 12,993 Net income per share .35 .37 .36 .45
* Revenue less cost of products sold. -30- 16 SCHEDULE II THE STANDARD REGISTER COMPANY VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE THREE YEARS ENDED DECEMBER 29, 1996 (Dollars in thousands)
Column A Column B Column C Column D Column E - -------- -------- -------- -------- -------- Additions --------- (1) (2) Charged Balance at (Credited) Balance beginning to costs Other at end Description of period and expenses Additions Deductions of period - ----------- ---------- --------- --------- ---------- ---------- Year Ended December 29, 1996 - ---------------------------- Allowance for doubtful accounts $ 3,913 $ 1,202 $ 1,477(a) $ 3,638 Inventory obsolescence 1,991 2,810 2,498(b) 2,303 Year Ended December 31, 1995 - ---------------------------- Allowance for doubtful accounts $ 2,200 $ 3,656 $ 1,943(a) $ 3,913 Inventory obsolescence 3,392 2,879 4,280(b) 1,991 Year Ended January 1, 1995 - -------------------------- Allowance for doubtful accounts $ 2,534 $ 1,922 $ 2,256(a) $ 2,200 Inventory obsolescence 2,950 700 258(b) 3,392
(a) Net uncollectible accounts written off (b) Obsolete inventory scrapped or written down to realizable value -31- EX-23 4 EXHIBIT 23 1 EX-23 CONSENT OF INDEPENDENT AUDITORS As independent auditors, we hereby consent to the incorporation of our reports included in and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements File No.'s 333-02683, 333-05231 and 333-15851. /S/ BATTELLE & BATTELLE LLP BATTELLE & BATTELLE LLP Dayton, Ohio March 21, 1997 -32- EX-24 5 EXHIBIT 24 1 EX-24 P O W E R O F A T T O R N E Y We, the undersigned Directors of The Standard Register Company (hereinafter called "Company"), an Ohio corporation, do hereby appoint Paul H. Granzow, Chairman of the Board of Directors of the Company, as our attorney-in-fact to sign on behalf of each of us as Directors of the Company the Annual Report on Form 10-K filed by the Company annually with the Securities and Exchange Commission. We, the undersigned Directors of the Company, have signed this Power of Attorney on December 12, 1996. /S/ R. W. Begley, Jr. /S/ A. Scavullo - --------------------------- ----------------------- R. W. Begley, Jr. A. Scavullo /S/ F. D. Clark, III /S/ J. J. Schiff, Jr. - --------------------------- ----------------------- F. D. Clark, III J. J. Schiff, Jr. /S/ G. G. Keeping /S/ C. F. Sherman - --------------------------- ----------------------- G. G. Keeping C. F. Sherman /S/ P. S. Redding /S/ J. Q. Sherman, II - --------------------------- ----------------------- P. S. Redding J. Q. Sherman, II /S/ D. L. Rediker - --------------------------- D. L. Rediker Signed and acknowledged in the presence of: /S/ P. H. Granzow /S/ R. H. Appenzeller - --------------------------- ----------------------- P. H. Granzow, Chairman of R. H. Appenzeller, Corporate Secretary the Board of Directors of & In-House Counsel of The Standard Register Company The Standard Register Company [Corporate Seal] STATE OF OHIO, MONTGOMERY COUNTY: The foregoing Directors of The Standard Register Company personally appeared before me, a Notary Public for the State of Ohio, and each of them acknowledged that they did sign this Power of Attorney, and that it is the free act and deed of each said Director. I have signed and sealed this Power of Attorney at Dayton, Ohio on December 12, 1996. /S/ Brynne A. Dailey ----------------------- Brynne A. Dailey Notary Public [ Notary Seal ] -33- EX-27 6 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STANDARD REGISTER COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-29-1996 DEC-29-1996 64,550 1,215 182,349 3,638 86,152 344,987 376,979 141,021 588,113 85,839 4,600 28,929 0 0 424,317 588,113 941,674 943,979 575,316 836,175 0 1,202 532 107,804 44,647 63,157 0 0 0 63,157 2.20 2.20
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