-----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, Dx/7dhz+4AWDcsgoSzdxm31lvHFILioLI5l8ruyM29dxcX1/TVExzzWlSSesDFMD dVulqkVMza8uousrz2niOg== 0000950152-98-002513.txt : 19980330 0000950152-98-002513.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950152-98-002513 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971228 FILED AS OF DATE: 19980327 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-K SEC ACT: SEC FILE NUMBER: 001-11699 FILM NUMBER: 98575286 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-K 1 THE STANDARD REGISTER COMPANY 10-K 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 28, 1997 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. [ ] The aggregate market value of all stock held by non-affiliates of the Registrant at March 10, 1998 was approximately $405,846,000, based on a closing sales price of $32.75 per share on March 10, 1998. At March 10, 1998, the number of shares outstanding of the issuer's classes of common stock are as follows: Common stock, $1.00 par value 23,706,612 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 15, 1998. -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, the Company's primary business has been the design, manufacture, and sale of business forms. To meet the needs of today's business environment, the business form has evolved to incorporate a wide range of sophisticated features and related services that facilitate the recording, storage and communication of business transactions and information. On December 31, 1997, the Company acquired the stock of Uarco Incorporated (UARCO) for $245 million in cash. The acquisition was in line with the Company's goal to become the leading document management company in the industry. The addition of UARCO enhances the Company's positions in key industry and product growth segments and creates the opportunity for significant economies of scale. With the acquisition, Standard Register believes it will be the largest company in the U.S. forms and pressure sensitive label market with an approximate 15 percent share. Moore Corporation is estimated to be a close second in the U.S. market. The UARCO acquisition occurred after the December 28, 1997 cut-off for the Company's fiscal year and was therefore not reflected in the Company's 1997 financial statements. UARCO's estimated 1997 sales were $474 million, nearly 50 percent the size of Standard Register's $966 million in revenue. The Company filed reports dated January 15, 1998 and March 13, 1998 on Forms 8K and 8K/A with respect to the acquisition. Effective January 1, 1998, the Company realigned its products and services into two divisions. The Document Management and Systems Division produces and delivers document management solutions to customers, including workflow consulting, document design, custom printed forms and labels, electronic forms, distribution services, and distributed intelligent printing and mailing systems. The Company's Impressions Division is built generally around the application of variable imaging technology, providing print on demand, promotional direct mail, and document and plastic card fulfillment services. 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. Documents are printed at 68 geographically disbursed locations in the U.S., including 15 sites obtained in the UARCO acquisition. Documents are shipped directly to customers or are stored by the Company in warehouses for subsequent on-demand delivery. The management of document 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, and printing supplies are available nationally and are 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 1997 of $9.1 million compared to $7.8 million for both 1996 and 1995. 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 seventy-two professional employees. -2- 3 Expenditures for property, plant and equipment totaled $61.3 million in 1997, compared to $57.8 million and $48.3 million in 1996 and 1995, 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 3.5 to 1 at December 28, 1997 as compared to 4.0 to 1 at December 29, 1996 and 3.4 to 1 at December 31, 1995. Total debt, including long-term and current maturities, was 0.9% of total capital at year-end 1997, compared to 1.0% and 2.6% for years-end 1996 and 1995, respectively. At year-end 1997, cash, cash equivalents and short-term investments exceeded current and long-term debt by $79 million. Following the close of the fiscal year, the Company financed the $245 million acquisition of UARCO by applying $15 million of cash and borrowing $230 million under a $300 million revolving credit agreement. On a pro-forma basis, adjusting for the effects of the acquisition, the Company's year-end 1997 current ratio would be 3.6 to 1 and the net debt (total debt less cash, cash equivalents, and short-term investments) to total capital ratio would be 25.4 percent. These relationships demonstrate the soundness of the Company's financial position. 4.) The business of the Company taken as a whole is not dependent upon any single customer 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 February 28, 1998 was $85.7 million compared to $53.8 million and $58.2 million at February 28, 1997 and February 29, 1996, respectively. The February 28, 1998 backlog included $17.6 million of business acquired in the UARCO acquisition. All orders are 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 February 28, 1998, the Company had 9,743 employees compared to 6,488 and 6,460 at February 28, 1997 and February 29, 1996, respectively. The February 28, 1998 count included 2,894 employees resulting from the UARCO acquisition. 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. -3- 4 In 1994, the Company entered into a joint venture with Russian and Dutch partners to manufacture and market business forms in Russia. The Company's $5.9 million investment was primarily in the form of refurbished equipment no longer required by the Company in its U.S. operations. As a result of the difficult business environment in Russia, the Company has written off its investment, taking pretax charges of $4.9 million and $1.0 million in years 1996 and 1997, respectively. ITEM 2 - PROPERTIES The Company's principal production facilities are located in the following cities: - Dayton, Ohio - Newark, Ohio - Eudora, Kansas - Shelbyville, Indiana - Middlebury, Vermont - York, Pennsylvania - Fayetteville, Arkansas - Porterville, California - Cincinnati, Ohio - Murfreesboro, Tennessee - Terre Haute, Indiana - Salisbury, Maryland - Rocky Mount, Virginia - Kirksville, Missouri - Tampa, Florida - Spring Grove, Illinois - Charlotte, North Carolina The following principal production facilities are from the acquisition of UARCO: - Corning, Iowa - Deep River, Connecticut - Fulton, Kentucky - Roseburg, Oregon - Radcliff, Kentucky - Toccoa, Georgia - Watseka, Illinois With the exceptions of Tampa, Florida and Toccoa, Georgia, these facilities are owned by the Company. In addition, the Company operates 38 smaller Stanfast Print Centers (including eight from the acquisition) and fourteen Imagining Service Centers. In most cases these facilities are located in major metropolitan locations in the U.S. and are leased. The Company's current capacity, augmented by modest capital additions, is expected to be sufficient to meet production requirements for the foreseeable future. Capacity utilization varies significantly by press size and feature capability. Most presses are in the 50 - 95 percent utilization range, averaging an estimated 70 percent overall. The Company believes its production facilities are suitable to meet future production needs. -4- 5 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. EXECUTIVE OFFICERS OF THE REGISTRANT
Officer Name Age Office and Experience Since ---- --- --------------------- ----- Alan L. Baughn 62 Vice President and Secretary. Mr. Baughn has served 1995 in this position since April 1997. He previously served as Vice President, Corporate Planning and Development from March 1995 to April 1997 and Assistant Vice President, Corporate Planning and Development from August 1992 to March 1995. Craig J. Brown 48 Senior Vice President, Administration, Treasurer and 1987 Chief Financial Officer. Mr. Brown has served in his current position since March 1995, having previously served as Vice President, Finance and Treasurer from April 1987 to March 1995. Brian W. Calabro 41 Vice President, Sales and Marketing, Document Management 1997 Division. Mr. Calabro has served in his current position since April 1997. He previously served as General Sales Manager, National Accounts since July 1994 and Manager, National Account Sales since November 1990. H. Franklin Coffman 59 Vice President, Customer Service and Communications. 1995 Mr. Coffman has served in this position since March 1995. Previously he held positions as Assistant Vice President, Customer Service and Communications from January 1995 to March 1995, Director, Field Automation and Customer Support from October 1993 to January 1995, and National Sales Manager from January 1992 to October 1993.
-5- 6 John L. Crawford 62 Vice President, Internal Auditing. Mr. Crawford was elected 1995 to this position in March 1995. He previously served as Assistant Vice President, Internal Auditing since August 1992. James H. DeYoung 59 Vice President, International Operations. Mr. DeYoung has 1995 served in this position since March 1995. He previously served as Assistant Vice President, International Operations from January 1994 to March 1995 and Director, World Trade from October 1990 to January 1994. Peter A. Dorsman 43 Senior Vice President and General Manager, Document Systems 1996 Division. Mr. Dorsman has served in this position since April 1997. He served as Senior Vice President and General Manager, Equipment Division from January 1996 to April 1997. Prior to joining Standard Register in January 1996, he held a number of senior marketing, strategic planning, and sales management positions with NCR Corporation. Paul H. Granzow 70 Chairman, Board of Directors. Mr. Granzow has served has 1984 Chairman of the Board of Directors since January 1984. He is co-trustee of the John Q. Sherman Trust and also serves as Senior Vice President and Director of the Weston Paper and Manufacturing Company. Peter S. Redding 59 President and Chief Executive Officer. Mr. Redding has 1981 served in his current position since December 1994. He previously served as Executive Vice President and Chief Operating Officer from January 1994 to December 1994 and Executive Vice President, Forms Division from January 1992 to January 1994. C. Thomas Russell 44 Vice President, Electronic Products and Chief 1995 Information Officer. Mr. Russell has served in this position since joining Standard Register in August 1995. Previously he was a partner with a major management and software consulting firm. John E. Scarpelli 54 Vice President, Human Resources. Mr. Scarpelli was elected 1995 to this position in March 1995. He previously served as Assistant Vice President, Human Resources from January 1993 to March 1995. Joseph V. Schwan 61 Executive Vice President and Chief Operating Officer. 1991 Mr. Schwan has served in this position since April 1997. Previously he served as Senior Vice President and General Manager, Document Management Division from March 1995 to April 1997 and Vice President, Forms Sales and Marketing from August 1991 to March 1995. Harry A. Seifert, Jr. 60 Vice President, Manufacturing. Mr. Seifert has held his 1987 current position since January 1997. Previously he had been Vice President, Forms Manufacturing, Document Management Division since August 1992.
-6- 7 Michael Spaul 50 Senior Vice President and General Manager, Communicolor. 1991 Mr. Spaul has served in this position since March 1995. He served as Vice President and General Manager of the Communicolor Division from January 1990 through March 1995.
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. 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.
1997 -------------------------------------------------------------------------------------------------- Cash Quarter Dividend High Low Last ------- -------- ---- --- ---- 1st $0.20 $35.50 $31.75 $33.12 2nd $0.20 $35.75 $30.50 $30.50 3rd $0.20 $35.25 $30.50 $32.75 4th $0.20 $35.50 $32.00 $35.37 1996 -------------------------------------------------------------------------------------------------- Cash Quarter Dividend High Low Last ------- -------- ---- --- ---- 1st $0.19 $24.37 $19.00 $23.75 2nd $0.19 $28.87 $23.37 $24.62 3rd $0.19 $27.87 $22.87 $27.62 4th $0.19 $32.50 $25.37 $32.50
(b) The number of shareholders of record of the Company's common stock as of March 10, 1998 was 3,298, 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 quarterly 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 1997 1996 1995 1994 1993 - ------------------------------ ---- ---- ---- ---- ---- Thousands except for per share data --------------------------------------------------------------------- Revenue $965,674 $943,979 $903,240 $767,415 $722,120 Net income 66,894 63,157 47,759 43,876 42,185 Earnings per share: Basic 2.35 2.20 1.67 1.53 1.47 Diluted 2.33 2.19 1.67 1.53 1.47 Selected Balance Sheet Data - --------------------------- Total assets $647,018 $588,113 $555,503 $525,659 $502,333 Long-term debt 4,600 4,600 4,600 11,071 17,546 Other - ----- Cash dividends paid per share .80 .76 .72 .68 .64
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: 1997 Compared to 1996 - -------------------------------------------- Net Income for 1997 was a record $66.9 million, 5.9 percent above the $63.2 million reported for the prior year; Basic Earnings Per Share were $2.35 compared to 1996's $2.20 result. Total Revenue for 1997 was $965.7 million, up 2.3 percent from $944.0 million in fiscal 1996. The largest of the Company's three divisions, The Document Management Division, recorded a 4.3 percent increase in revenue to $702.2 million, reflecting estimated gains of 2.1 percent in units and 2.2 percent in average selling prices. Within this Division, traditional business forms and related services were down 1.9 percent, which compares favorably to an estimated 4.0 percent decline in industry demand for these products. Revenues for the Imaging Services and Stanfast Groups were up 21.0 percent and 26.2 percent, respectively, as the Company continued to exploit the significant growth opportunities in these markets. The Company believes it continues to pick up market share. The Communicolor Division reported revenue of $97.3 million, down 4.2 percent from the prior year. The decline was attributed in part to the mailing of fewer pieces by many of the Division's customers and competitive pressures from commercial printers equipped with high resolution imaging equipment. The Division took actions in 1997 to bolster its sales force and product offering and saw consistent progress during the year; after seven consecutive quarters of sales declines, fourth quarter revenue increased 5.0 percent. Revenue for the Document Systems Division was $163.1 million, down 0.9 percent from 1996's result. New equipment installations were off 7.7 percent reflecting the continuing transition from traditional forms handling equipment to newer generation intelligent printing systems. Equipment maintenance was also lower, off 2.9 percent, which resulted in part from an effort to trim unprofitable business; parenthetically, dollar gross margins in the service segment increased $3.5 million despite a $1.1 million drop in revenue. In other product segments, supplies revenue rose 4.2 percent, Pressure Sensitive label business grew 1.9 percent, and Electronic Services increased 19.4 percent. -8- 9 The gross margin improved from 39.1 percent of revenue in 1996 to 40.3 percent in the year just ended and was the major contributing factor to the Company's increased profitability. This improvement is attributed primarily to modestly improved pricing, lower average paper prices, and other manufacturing cost improvements. After peaking at year-end 1995, paper prices generally fell off until June 1997, when the first of the year's three price increases was recorded. The Company raised the prices of its forms in December 1997 in response to the rising costs of paper and other operating items. Notwithstanding a competitive marketplace, the Company has historically been able to recover higher paper costs over time by providing high value added products and services to its customers. Selling, administrative, and engineering costs increased 7.0 percent from $225.6 million in 1996 to $241.5 million in 1997. The Company has increased its investment in information services as part of a plan to implement integrated systems to improve order management and management reporting. In addition, the Company increased its level of sales support resource in the field as part of its program to improve overall sales productivity. A program to ensure that the Company's systems are Year 2000 compliant by mid-year 1999 has been undertaken; $800,000 was incurred in 1997 and an estimated $9.2 million will be spent during 1998 and 1999. Depreciation and amortization rose 5.3 percent in response to higher capital spending during the last two years. The income tax rate was 39.7 percent compared to 41.4 percent in 1996. The lower tax rate is primarily attributed to Russian joint venture capital losses incurred in 1996 and for which current or future tax benefits were not provided. 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. Basic Earnings Per Share were $2.20 versus $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 $0.13 per share after tax, and a favorable LIFO inventory adjustment related to lower paper prices, also $0.13 per share. There was an unfavorable LIFO inventory adjustment in 1995 equivalent to $10.0 million after tax, or $0.34 per share. Excluding the LIFO adjustments in both years and the Russian joint venture adjustment, Net Income was 9.7 percent higher. 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. Revenue in 1996 was $944.0 million, 4.5 percent above the $903.2 million reported for 1995. The Document Management Division reported $673.5 million in revenue, a 7.4 percent increase over 1995. Traditional business forms revenue rose 0.9 percent while the Imaging Services, Stanfast, and Distribution Services Groups produced a 23.7 percent overall increase. The Communicolor Division, a producer of promotional direct mail, reported revenue of $101.6 million, 11.5 percent below the 1995 result. This reduction reflected fewer mailings, lower paper prices, and new competition from commercial printers. Printing and imaging capacity added during 1996 was not fully utilized, producing lower operating margins. -9- 10 The Document Systems Division generated revenue of $164.7 million, up 6.0 percent compared to 1995's $155.3 million. Note that these results were restated for the reclassification of pressure sensitive labels and electronic services to this Division from the Document Management Division. 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 as part of the Division's plan to focus primarily on intelligent printing applications. The drop in maintenance revenue reflected 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. 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 - ------------------------------- The Company's financial condition remained very strong. The total balance of cash and short-term investments was $83.6 million at year end, compared to $4.6 million in total debt. Shareholders' equity ended the year at $487.9 million. Cash flow from operations was sufficient to fund a record $61.3 million of capital expenditures, $3.0 million of additional investment in F3 Corporation, $22.8 million of dividends, $12.2 million of stock repurchases, and an increase in cash reserves of $17.8 million. Capital expenditures in 1997 went in major part for manufacturing capacity additions, automation of field sales offices, and internal application software development. The Company expects 1998 capital spending to be in the $65 million to $75 million range. On December 15, the Company entered into a $300 million unsecured five-year revolving credit agreement underwritten by KeyBank, N.A. to provide financing for the acquisition of Uarco, Inc. and other general corporate purposes. The Company closed on the $245 million acquisition on December 31, 1997, applying $15 million of corporate cash and borrowing $230 million under the revolver. Under the terms of the agreement, the interest rate is -10- 11 set periodically at a spread over the London Interbank Offered Rate (LIBOR); the spread is based upon the Company's ratio of net debt (debt less cash and short-term investments) to total capital. On a pro-forma basis, the Company's net debt to total capital ratio following the December 31 acquisition was 25.4 percent. The Company subsequently entered into a five-year swap agreement that effectively fixes the interest rate on $200 million of the debt at an all-in cost of 6.0 percent. In management's opinion, the combination of the revolving credit agreement and internally generated cash flow will be sufficient to provide for the Company's near-term financing needs. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements Page Independent Auditors' Report 15 Balance Sheet - December 28, 1997 and December 29, 1996 16-17 Statement of Income - Years ended December 28, 1997, December 29, 1996 and December 31, 1995 18 Statement of Shareholders' Equity - Years ended December 28, 1997, December 29, 1996 and December 31, 1995 19 Statement of Cash Flows - Years ended December 28, 1997, December 29, 1996 and December 31, 1995 20 Notes to Consolidated Financial Statements 21-30 Index to Financial Statement Schedule, Years ended December 31, 1997, December 29, 1996 and December 31, 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 notes thereto. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III Items 10, 11, 12 and 13 are incorporated by reference from the Company's Proxy Statement for the 1998 Annual Meeting of shareholders. -11- 12 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 incorporated herein by reference. 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 The Company filed no current reports on Form 8-K during the quarter ended December 28, 1997. Form 8-K and amended Form 8-K/A were filed on January 15, 1998 and March 13, 1998, respectively. -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 27, 1998. 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 27, 1998: 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 27, 1998 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. Incorporated by reference to 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. Incorporated by reference to Form 10-K for year ended December 31, 1995. 10. Material contracts 10.3 The Standard Register Company Non-Qualified Retirement Plan. Incorporated by reference to Form 10-K for year ended January 2, 1994. 10.4 The Standard Register Company Officers' Supplemental Non-Qualified Retirement Plan. Incorporated by reference 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. 10.8 The Standard Register Company Deferred Compensation Plan. Incorporated by reference to Registration Statement No. 333-43055. 10.9 The Standard Register Company Management Incentive Plan. Incorporated by reference to the Company's Proxy Statement for the Annual Meeting of Shareholders held April 16, 1997. 10.10 Stock Purchase Agreement dated November 26, 1997. Incorporated by reference to Form 8-K filed January 15, 1998. 10.11 The Standard Register Dividend Reinvestment and Common Stock Purchase Plan. Incorporated by reference to Registration Statement No. 333-05321. 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- 15 EX-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 28, 1997 and December 29, 1996, and the related statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 28, 1997. Our audits also included the financial statement schedule listed in Item 14(a)(2). These financial statements 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 28, 1997 and December 29, 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /S/ BATTELLE & BATTELLE LLP BATTELLE & BATTELLE LLP Certified Public Accountants Dayton, Ohio January 23, 1998 -15- 16 THE STANDARD REGISTER COMPANY BALANCE SHEET (DOLLARS IN THOUSANDS)
December 28 December 29 A S S E T S 1997 1996 ------------ ----------- CURRENT ASSETS Cash and cash equivalents $ 67,556 $ 64,550 Short-term investments 16,055 1,215 Accounts receivable, less allowance for losses of $2,864 and $3,638, respectively 191,031 178,711 Inventories 85,546 86,152 Deferred income taxes 6,168 8,206 Prepaid pension expense 5,371 952 Prepaid other expense 7,091 5,201 -------- -------- Total current assets 378,818 344,987 -------- -------- PLANT AND EQUIPMENT Buildings and improvements 67,874 61,711 Machinery and equipment 237,320 224,702 Office equipment 67,324 60,894 -------- --------- Total 372,518 347,307 Less accumulated depreciation 155,634 141,021 -------- -------- Depreciated cost 216,884 206,286 Plant and equipment under construction 39,070 26,160 Land 4,081 3,512 ------- -------- Total plant and equipment 260,035 235,958 -------- -------- OTHER ASSETS 8,165 7,168 -------- -------- Total assets $647,018 $588,113 ======== ========
-16- 17 THE STANDARD REGISTER COMPANY BALANCE SHEET (DOLLARS IN THOUSANDS)
December 28 December 29 LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996 ----------- ----------- CURRENT LIABILITIES Accounts payable $ 25,296 $ 20,225 Dividends payable 5,968 5,738 Accrued compensation 34,817 34,355 Accrued other expense 4,581 5,536 Accrued taxes, except income 6,977 5,902 Income taxes payable 1,155 2,624 Customer deposits 21,003 4,185 Deferred service contract income 7,222 7,274 --------- --------- Total current liabilities 107,019 85,839 --------- --------- LONG-TERM LIABILITIES Long-term debt 4,600 4,600 Retiree health care obligation 28,779 27,643 Deferred income taxes 18,685 16,785 --------- --------- Total long-term liabilities 52,064 49,028 --------- --------- SHAREHOLDERS' EQUITY Common stock, $1.00 par value: Authorized 50,500,000 shares Issued 1997 - 24,308,437; 1996 - 24,204,392 24,308 24,204 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 31,599 28,705 Retained earnings 444,259 400,387 Cost of common shares in treasury: 1997 - 615,073 shares; 1996 - 239,486 shares (16,956) (4,775) --------- --------- Total shareholders' equity 487,935 453,246 --------- --------- Total liabilities and shareholders' equity $ 647,018 $ 588,113 ========= =========
See accompanying notes. -17- 18 THE STANDARD REGISTER COMPANY STATEMENT OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended December 28 December 29 December 31 1997 1996 1995 -------------- -------------- -------------- REVENUE $ 965,674 $ 943,979 $ 903,240 --------- --------- --------- COST AND EXPENSE Cost of products sold 576,292 575,316 584,088 Engineering and research 9,100 7,842 7,813 Selling and administrative 232,418 217,671 200,812 Depreciation and amortization 36,646 34,814 29,326 Interest 288 532 974 --------- --------- --------- Total cost and expense 854,744 836,175 823,013 --------- --------- --------- INCOME BEFORE INCOME TAXES 110,930 107,804 80,227 --------- --------- --------- INCOME TAXES Current 40,098 42,009 32,752 Deferred 3,938 2,638 (284) --------- --------- --------- Total income taxes 44,036 44,647 32,468 --------- --------- --------- NET INCOME $ 66,894 $ 63,157 $ 47,759 ========= ========= ========= EARNINGS PER SHARE Basic $ 2.35 $ 2.20 $ 1.67 ========= ========= ========= Diluted $ 2.33 $ 2.19 $ 1.67 ========= ========= =========
See accompanying notes. -18- 19 THE STANDARD REGISTER COMPANY STATEMENT OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended December 28 December 29 December 31 1997 1996 1995 -------------- -------------- -------------- COMMON STOCK Beginning balance $ 24,204 $ 24,142 $ 24,085 Add shares issued under: Stock Incentive Plan 50 55 57 Dividend Reinvestment Plan 22 7 - Stock Option Plan 32 - - --------- --------- --------- Ending balance 24,308 24,204 24,142 --------- --------- --------- CLASS A STOCK 4,725 4,725 4,725 --------- --------- --------- CAPITAL IN EXCESS OF PAR VALUE Beginning balance 28,705 27,450 26,507 Add excess of market over par value of shares issued under: Stock Incentive Plan 1,562 1,062 943 Dividend Reinvestment Plan 709 193 - Stock Option Plan 623 - - --------- --------- --------- Ending balance 31,599 28,705 27,450 --------- --------- --------- RETAINED EARNINGS Beginning balance 400,387 359,334 332,501 Add net income for year 66,894 63,157 47,759 Less cash dividends declared (23,022) (22,104) (20,926) --------- --------- --------- Ending balance 444,259 400,387 359,334 --------- --------- --------- TREASURY SHARES Beginning balance (4,775) (4,434) (3,852) Cost of common shares purchased (12,181) (341) (582) --------- --------- --------- Ending balance (16,956) (4,775) (4,434) --------- --------- --------- Total shareholders' equity $ 487,935 $ 453,246 $ 411,217 ========= ========= =========
See accompanying notes. -19- 20 THE STANDARD REGISTER COMPANY STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended December 28 December 29 December 31 1997 1996 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 66,894 $ 63,157 $ 47,759 --------- --------- --------- Add (deduct) items not affecting cash: Depreciation and amortization 36,646 34,814 29,326 Loss (gain) on sale of assets 346 1,508 (1,309) Unrealized gain on investments (294) - - Loss on other investments 1,852 4,383 830 Provision for deferred income taxes 3,938 2,638 (284) Increase (decrease) in cash arising from changes in assets and liabilities: Accounts receivable (12,320) 2,998 (29,757) Inventories 606 11,665 2,856 Other assets (6,309) (2,494) 202 Accounts payable and accrued expenses 6,789 1,762 8,159 Income taxes payable (1,469) 90 256 Customer deposits 16,818 (4,149) (1,473) Deferred income (52) (1,181) 1,095 --------- --------- --------- Net adjustments 46,551 52,034 9,901 --------- --------- --------- Net cash provided by operating activities 113,445 115,191 57,660 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to plant and equipment (61,287) (57,783) (48,332) Proceeds from sale of plant and equipment 432 1,692 3,330 Purchases of short-term investments (15,000) - (1,330) Sales of short-term investments 455 115 - Additions to other investments (3,028) (1,008) (5,555) Other investing activities (36) (675) --------- --------- --------- Net cash used in investing activities (78,464) (56,984) (52,562) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt - (6,471) (6,471) Proceeds from issuance of common stock 2,998 1,317 1,000 Purchase of treasury stock (12,181) (341) (582) Dividends paid (22,792) (21,808) (20,634) --------- --------- --------- Net cash used in financing activities (31,975) (27,303) (26,687) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,006 30,904 (21,589) Cash and cash equivalents at beginning of year 64,550 33,646 55,235 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 67,556 $ 64,550 $ 33,646 ========= ========= ========= SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid during the year for: Interest $ 141 $ 565 $ 999 Income taxes $ 41,317 $ 42,115 $ 32,496 Non-cash investing activities: Note receivable from sale of assets $ - $ 650 $ -
See accompanying notes. -20- 21 THE STANDARD REGISTER COMPANY NOTES TO FINANCIAL STATEMENTS (Dollars in thousands except per share data) 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 document management services. 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 28, 1997, December 29, 1996, and December 31, 1995 had 52 weeks. CASH EQUIVALENTS - The Company classifies as cash equivalents all highly liquid investments with original maturities 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. SHORT-TERM INVESTMENTS - Debt securities for which the Company has the intent and ability to hold to maturity are classified as held-to-maturity and are stated at amortized cost. Securities are classified as trading when held for short-term periods in anticipation of market gains and are reported at fair market value, with unrealized gains and losses included in income. 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. Finished products include printed 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. Impairment of asset value is recognized whenever events or circumstances indicate that carrying amounts are not recoverable. 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 $36,431 in 1997, $34,601 in 1996, and $29,143 in 1995. Estimated asset lives are: Classification Years -------------- ----- Buildings and improvements 10-40 Machinery and equipment 5-15 Office equipment 5-15 -21- 22 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 to the customer. 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. EARNINGS PER SHARE - Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" is effective for the Company's 1997 fiscal year. This new standard changes the manner in which earnings per share (EPS) amounts are calculated and presented. Basic EPS is the per share allocation of net income available to shareholders based on the weighted average number of shares outstanding during the period. Diluted EPS represents the per share allocation of net income based on the weighted average number of shares outstanding plus all common shares that potentially could have been issued under the Company's stock option program. ACCOUNTING FOR STOCK OPTIONS - The Company follows Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees" in accounting for its employee stock options. Under APB 25, no compensation expense is recognized in the financial statements because the exercise price of employee stock options equals the market price of the underlying stock on the date of the grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." NEW ACCOUNTING PRONOUNCEMENT - In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information". This Statement significantly changes the way public business enterprises report information about operating segments in annual financial statements. SFAS 131 uses a "management approach" to disclose financial and descriptive information about an enterprise's reportable operating segments which is based on reporting information the way management organizes the segments for making operating decisions and assessing performance. SFAS 131 will be effective for the Company's 1998 fiscal year and the reported business segments will reflect the organizational structure of the Company at that time. 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 (FIFO) method had been used, these inventories would have been $35,601 higher at December 28, 1997 and $34,885 higher at December 29, 1996. Inventories at the respective year-ends are as follows:
December 28 December 29 1997 1996 ----------- ----------- Finished products $ 58,675 $ 55,449 Jobs in process 16,500 18,573 Materials and supplies 10,371 12,130 ------- ------- Total $ 85,546 $ 86,152 ======= =======
-22- 23 NOTE 3 - LONG-TERM DEBT Long-term debt consists of industrial development revenue bonds issued by Rutherford County, Tennessee. Interest is payable semi-annually at 6.125%. Required annual principal payments subsequent to December 28, 1997 are as follows: 1998 - None; 1999 - $525; 2000 - $555; 2001 - $590; and 2002 - $630. NOTE 4 - INCOME TAXES The provision for income taxes consists of the following:
1997 1996 1995 ---- ---- ---- Current Federal $ 32,933 $ 33,285 $ 26,386 State and local 7,165 8,724 6,366 Deferred 3,938 2,638 ( 284) -------- -------- ------- Total $ 44,036 $ 44,647 $ 32,468 ======= ======= =======
The significant components of the deferred tax expense (benefit) are as follows:
1997 1996 1995 ---- ---- ---- Depreciation $ 2,357 $ 853 $ 1,128 Pension 2,039 1,712 391 Inventories 110 267 976 Compensation and benefits ( 431) ( 33) ( 1,331) Allowance for doubtful accounts 312 111 ( 690) Retiree health care benefits ( 457) ( 620) ( 393) Other 8 348 ( 365) --------- ------- ---------- Total $ 3,938 $ 2,638 ($ 284) ======= ======= ========
The components of the net deferred tax asset and liability as of December 28, 1997 and December 29, 1996 are as follows:
December 28 December 29 1997 1996 ----------- ----------- Deferred tax asset: Allowance for doubtful accounts $ 1,153 $ 1,465 Inventories 2,524 2,634 Compensation and benefits 5,127 4,696 Pension ( 2,739) ( 700) Other 103 111 -------- --------- $ 6,168 $ 8,206 ======= ======== Deferred tax liability: Depreciation $ 30,272 $ 27,915 Retiree health care benefits ( 11,587) ( 11,130) ------ ------- $ 18,685 $ 16,785 ======= =======
-23- 24 NOTE 4 - INCOME TAXES (CONTINUED) The reconciliation of the statutory federal income tax rate and the effective tax rate follows:
1997 1996 1995 ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 35.0% State and local income taxes 5.3 5.3 5.3 Other ( .6) 1.1 .2 ---- ---- ---- Effective tax rate 39.7% 41.4% 40.5% ==== ==== ====
NOTE 5 - CAPITAL STRUCTURE 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 23,693,364 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 6 - EARNINGS PER SHARE DATA The following per share data show the amounts used in computing earnings per share (EPS) and the dilutive effects of stock options:
52 Weeks Ended December 28, 1997 -------------------------------- Net Shares Income Income (000's) Per Share ------ ------- --------- Basic $ 66,894 28,498 $2.35 ==== Dilutive effect of stock options - 203 -------- ------- Diluted $ 66,894 28,701 $2.33 ======== ====== ==== 52 Weeks Ended December 29, 1996 -------------------------------- Net Shares Income Income (000's) Per Share ------ ------- --------- Basic $ 63,157 28,687 $2.20 ==== Dilutive effect of stock options - 118 -------- ------ Diluted $ 63,157 28,805 $2.19 ======== ====== ====
52 Weeks Ended December 31, 1995 -------------------------------- Net Shares Income Income (000's) Per Share ------ ------- --------- Basic $ 47,759 28,653 $1.67 ==== Dilutive effect of stock options - - -------- ------ Diluted $ 47,759 28,653 $1.67 ======== ====== ====
The effects of stock options on diluted EPS are reflected through the application of the treasury stock method. Under this method, proceeds received by the Company, based on assumed exercise, are hypothetically used to repurchase the Company's shares at the average market price for the period. -24- 25 NOTE 7 - 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 options have a term of ten years. 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. The options are exercisable over periods determined when granted. 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. Options to purchase 231,000 shares were granted on December 28, 1996 with an exercise price of $32.375 per share. Options to purchase 214,000 shares were granted on December 27, 1997 with an exercise price of $35.3125 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 dates, 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 reduced as follows:
1997 1996 1995 ---- ---- ---- Net income As reported $ 66,894 $ 63,157 $ 47,759 Pro forma 65,101 62,512 47,759 Basic earnings per share As reported $ 2.35 $ 2.20 $ 1.67 Pro forma 2.28 2.18 1.67 Diluted earnings per share As reported $ 2.33 $ 2.19 $ 1.67 Pro forma 2.27 2.17 1.67
The fair values of options granted in fiscal years 1997, 1996, and 1995 were estimated at $10.58, $10.37, and $6.12 per share, respectively, using the Black-Scholes option-pricing model based on the following assumptions:
1997 1996 1995 ---- ---- ---- Risk-free interest rate 5.7% 6.2% 5.4% Dividend yield 2.0% 2.0% 2.0% Expected life 5 years 5 years 5 years Expected volatility 29.7% 31.5% 31.2%
Following is a summary of the status of the Company's stock option plan during fiscal years 1997, 1996, and 1995:
1997 1996 1995 ----------------------- ------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding, beginning of year 776,000 $ 23.772 550,000 $ 20.125 - - Granted 227,000 35.313 231,000 32.375 550,000 $20.125 Exercised ( 32,580) 20.125 - - - - Canceled ( 46,000) 21.728 ( 5,000) 20.125 - - --------- ------- ------- Outstanding, end of year 924,420 776,000 550,000 ========= ======= =======
-25- 26 NOTE 7 - STOCK OPTION PLAN (CONTINUED) Following is a summary of the status of stock options outstanding at December 28, 1997:
Number Number Exercise Remaining Outstanding Exercisable Price Term ----------- ----------- ----- ---- 472,420 169,420 $ 20.125 8 years 225,000 123,600 32.375 9 years 227,000 - 35.313 10 years ------- ------- 924,420 293,020 ======= =======
NOTE 8 - 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. The Company has non-qualified plans which provide benefits in addition to those provided in the qualified plans. Pension fund assets are invested in a broadly diversified portfolio consisting primarily of publicly-traded common stocks and fixed income securities. Assumptions used in the respective accounting years to determine pension costs, are as follows:
1997 1996 1995 ---- ---- ---- Discount rate 8.5% 8.5% 8.5% Rate of increase in compensation levels 5.0% 5.0% 4.0% Expected long-term rate of return on assets 10.5% 10.5% 9.5%
Pension costs consist of the following components:
1997 1996 1995 ---- ---- ---- Service cost of benefits earned $ 6,476 $ 5,734 $ 4,776 Interest cost on projected benefit obligation 13,265 12,431 10,573 Actual gain on plan assets ( 51,987) ( 22,507) ( 24,657) Asset gain deferred 36,856 10,074 14,691 Amortization of transition asset ( 120) ( 605) ( 722) Amortization of prior service costs 1,950 1,950 1,898 Amortization of net loss from prior periods 117 62 - Cost of early retirement window 1,118 - - ------ ------- ------- Net pension cost $ 7,675 $ 7,139 $ 6,559 ====== ======= =======
-26- 27 NOTE 8 - 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 28, 1997 December 29, 1996 ---------------------------- ------------------------------ Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets -------- ------ -------- ------ Actuarial present value of: Accumulated benefit obligation Vested $127,611 $ 5,172 $115,115 $ 3,050 Non-vested 8,685 - 8,724 390 -------- --------- -------- --------- Total $136,296 $ 5,172 $123,839 $ 3,440 ======== ========= ======== ========= Projected benefit obligation $169,206 $ 9,470 $155,513 $ 6,421 ======== ========= ======== ========= Plan assets at fair value $204,935 $ - $150,857 $ - ======== ========= ======== ========= Plan assets greater (less) than projected benefit obligation $ 35,729 ($ 9,470) ($ 4,656) ($ 6,421) Unrecognized net (gain) loss ( 32,575) 4,290 61 1,806 Unrecognized prior service cost 7,509 1,439 9,227 1,670 Minimum liability adjustment - ( 1,431) - ( 495) Unrecognized transition asset ( 120) - ( 240) - -------- --------- -------- --------- Prepaid (accrued) pension expense $ 10,543 ($ 5,172) $ 4,392 ($ 3,440) ======== ========= ======== ========= Net asset recognized in balance sheet $ 5,371 $ 952 ======== ========
NOTE 9 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to providing pension benefits, the Company provides certain health care benefits for eligible employees who retired prior to July 1, 1992. The components of postretirement benefit costs are as follows:
1997 1996 1995 ---- ---- ---- Service cost - - - Interest cost $ 2,401 $ 2,728 $ 2,495 Amortization of net loss from prior periods - 266 143 ------ ------ ------ Postretirement benefit cost $ 2,401 $ 2,994 $ 2,638 ====== ====== ======
The funding policy is to pay claims as they occur. Payments for postretirement health benefits, net of retiree contributions, amounted to $1,265, $1,452 and $1,662 in 1997, 1996, and 1995, respectively. -27- 28 NOTE 9 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED) The funded status of the plan at December 28, 1997 and December 29, 1996 is as follows:
December 28 December 29 1997 1996 ----------- ----------- Accumulated postretirement benefit obligation for retirees $ 25,597 $ 29,182 Plan assets - - ------- ------- Accumulated postretirement benefit obligation in excess of plan assets 25,597 29,182 Unrecognized net gain (loss) 3,182 ( 1,539) ------- ------- Retiree health care obligation shown in balance sheet $ 28,779 $ 27,643 ======= =======
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 10.5% in 1997 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 $298 increase in the service and interest components of expense for 1997 ($341 for 1996) and a $3,048 increase in the postretirement benefit obligation at December 28, 1997 ($3,503 increase at December 29, 1996). NOTE 10 - CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash and equivalents, short-term investments, and trade receivables. The Company's 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 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
December 28, 1997 December 29, 1996 ----------------- ----------------- Fair Carrying Fair Carrying Value Amount Value Amount ----- ------ ----- ------ Assets Cash and equivalents $ 67,556 $ 67,556 $ 64,550 $ 64,550 Securities held to maturity 760 760 1,215 1,215 Trading securities 15,295 15,295 - - Liabilities Long-term debt $ 4,695 $ 4,600 $ 4,654 $ 4,600
The carrying amounts of cash equivalents and securities held to maturity approximate fair value because of the short maturities of those instruments. The fair value of trading securities is based on quoted market prices. The fair value of long-term debt is estimated based on quoted market prices for similar issues of the same remaining maturities. -28- 29 NOTE 12 - COMMITMENTS AND CONTINGENCIES Purchase commitments for capital improvements aggregated $8,972 at December 28, 1997. Also, the Company has purchase commitments for equipment for resale of $483 at December 28, 1997. The Company has no purchase agreements with suppliers extending beyond normal quantity requirements. The Company is obligated under several leases expiring at various dates. Annual expense under these leases was $25,450 in 1997, $23,320 in 1996, and $21,692 in 1995. Rental commitments under existing leases at December 28, 1997, are:
Computer and Real Sales Transportation Other Estate Offices Equipment Equipment Total ------ ------- --------- --------- ----- 1998 $7,703 $7,672 $308 $2,856 $18,539 1999 6,517 6,092 287 2,290 15,186 2000 5,302 4,366 161 1,844 11,673 2001 3,496 3,053 141 1,135 7,825 2002 1,895 1,535 99 999 4,528 Later years - 172 230 54 456
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 13 - SUBSEQUENT EVENTS On December 31, 1997, the Company acquired all outstanding shares of Uarco Incorporated (Uarco), a subsidiary of Settsu Corporation of Osaka, Japan, pursuant to a definitive purchase agreement dated November 27, 1997. Uarco produces and markets business forms, pressure sensitive labels, business equipment, supplies, and workflow systems to the U.S. market. At December 31, 1997, Uarco had approximately 3,200 employees located in 18 production facilities and 125 sales offices. The unaudited sales of Uarco during 1997 were approximately $470 million, excluding operations divested prior to the acquisition date. The purchase price was $245 million in cash, of which $230 million was financed under a new five-year, unsecured bank revolving credit agreement. The credit line provides for borrowings up to $300 million and bears interest at a floating rate of LIBOR plus a spread dependent upon the debt to equity ratio. On January 23, 1998, $200 million of the outstanding debt was swapped to an effective fixed interest rate of 6.09%. The acquisition will be accounted for as a purchase in fiscal 1998. The purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair market values. The purchase price allocation will be determined during 1998 when additional information becomes available. Results of operations for Uarco will be included with those of the Company beginning in fiscal 1998. -29- 30 NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data follow:
Quarters Ended ---------------------------------------------------------------------- March 30 June 29 September 28 December 28 1997 1997 1997 1997 -------- ------- ------------ ----------- Revenue $230,114 $236,467 $237,243 $261,850 Gross margin* 93,589 96,537 97,454 101,802 Net income 14,948 16,999 16,250 18,697 Basic earnings per share .52 .60 .57 .66 Diluted earnings per share .52 .59 .57 .65
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 Basic earnings per share .47 .56 .56 .61 Diluted earnings per share .47 .56 .56 .60
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 Basic earnings per share .38 .42 .41 .46 Diluted earnings per share .38 .42 .41 .46
* Revenue less cost of products sold. -30- 31 SCHEDULE II THE STANDARD REGISTER COMPANY VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE THREE YEARS ENDED DECEMBER 28, 1997 (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 28, 1997 - ---------------------------- Allowance for doubtful accounts $ 3,638 $ 1,051 $ 1,825(a) $ 2,864 Inventory obsolescence 2,303 2,915 2,362(b) 2,856 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
(a) Net uncollectible accounts written off (b) Obsolete inventory scrapped or written down to realizable value -31- EX-13 2 EXHIBIT 13 1 [Standard Register Logo] Annual Report 1997 2 Standard Register is a leading provider of document management products and services to the healthcare, financial and general business markets. Based in Dayton, Ohio, the Company has a nationwide network of sales offices, manufacturing operations, print on demand centers and distribution centers. The Company also offers training and technological support to International Associates in 29 countries. Standard Register ranks in the top five* U.S. based printing companies. In recent years, industry demand changed from multi-part business forms to single part and electronic documents. Outsourcing the printing of business documents is another increasing trend. Standard Register meets these changing needs by offering quality print on demand and commercial printing services, business forms, document management solutions, labels, electronic documents, direct mail marketing products, phone cards, fulfillment services, and equipment. The enclosed product solutions reflect Standard Register's excellence in print, fulfillment and service. The design of this annual report provides a view of the Company, its products and its services. *Source: CAP Ventures, Inc. 1997
Operations Review GATEFOLD Letter to Shareholders 2 Strategic Direction 3 Officers 20 Directors 22 Introduction to Financial Section 23 Safe Harbor Statement 23 Operating Locations 46 Shareholder Information 47 Company Contacts 48
[STANDARD REGISTER/LISTED ON NEW YORK STOCK EXCHANGE LOGO] 3 COMPANY AT A GLANCE 1997 DIVISIONAL STRUCTURE DOCUMENT MANAGEMENT Year * BUSINESS FORMS 1995 1996 1997 ($ in millions) * DISTRIBUTION SERVICES REVENUE 627 673 702 * PRINT PROCESSING AND FULFILLMENT * STANFAST ON DEMAND PRINTING DOCUMENT SYSTEMS Year * INTELLIGENT PRINTING SYSTEMS AND SUPPLIES 1995 1996 1997 ($ in millions) * PRESSURE SENSITIVE LABELS* REVENUE 155 165 163 * ELECTRONIC DOCUMENTS AND SERVICES* Year COMMUNICOLOR 1995 1996 1997 ($ in millions) * DIRECT MAIL PRINTING AND PERSONALIZATION REVENUE 115 102 97 1998 DIVISIONAL STRUCTURE DOCUMENT MANAGEMENT & SYSTEMS Year * BUSINESS FORMS 1995 1996 1997** ($ in millions) * DISTRIBUTION SERVICES REVENUE 657 679 1070 * PRESSURE SENSITIVE LABELS* * ELECTRONIC SERVICES/ WORKFLOW * DOCUMENT SYSTEMS IMPRESSIONS Year * COMMUNICOLOR 1995 1996 1997** ($ in millions) * IMAGING SERVICES REVENUE 240 261 362 * STANFAST * COMMERCIAL PRINTING
*Pressure Sensitive Labels and Electronic Documents and Services were reassigned from Document Management to Document Systems during 1997. All amounts shown are restated. **Amounts for 1997 are pro forma and include estimated revenues for Uarco Incorporated. 4 BUSINESS STRATEGY DOCUMENT MANAGEMENT PAGE 5 Business Forms Document Security SMARTworks Label Management Document Systems PRINT ON DEMAND PAGE 13 Print On Demand Stanfast Phone Cards / Smart Cards Statement Billing DIRECT MAIL/COMMERCIAL PRINTING PAGE 17 High-Color Printing and Personalization Brochure Capabilities 5 FINANCIAL HIGHLIGHTS (Dollars in thousands, except for per share amounts)
1997 % change 1996 % change 1995 % change - --------------------------------------------------------------------------------------------------------------------------- Revenue $ 965,674 2.3% $ 943,979 4.5% $ 903,240 17.7% Net income $ 66,894 5.9% $ 63,157 32.2% $ 47,759 8.8% Basic Per Share $ 2.35 $ 2.20 $ 1.67 Diluted Per Share $ 2.33 $ 2.19 $ 1.67 Dividends paid $ 22,792 4.5% $ 21,808 5.7% $ 20,634 5.7% Per Share $ .80 $ .76 $ .72 Shareholders' equity $ 487,935 7.7% $ 453,246 10.2% $ 411,217 7.1% Per Share $ 17.17 $ 15.80 $ 14.36
95 96 97 (%) RETURN ON INVESTED CAPITAL 12 14 14
95 96 97 ($ in millions) OPERATING CASH FLOW 77 98 104
95 96 97 ($ in millions) CASH AND S-T INVESTMENTS TOTAL DEBT Cash & S-T Investments 35 66 84 Total Debt 11 5 5
SR 1 1997 6 [PHOTO] Left: Paul H. Granzow, Chairman of the Board of Directors Right: Peter S. Redding, President and Chief Executive Officer THE CHIEF LIMITATIONS OF HUMANITY ARE IN ITS VISIONS - NOT IN ITS POWERS OF ACHIEVEMENT. A. E. Morgan SR 2 1997 7 [STANDARD REGISTER LETTERHEAD] Fellow Shareholders: What a year! Standard Register reported a new high in revenue and net income for 1997. And on the last day of the calendar year, with a major acquisition, we increased the size of our company by 50 percent - a dramatic expression of our strategic plan approved by your Board in 1997. The strategic planning process was the most comprehensive in our history, It was a year-long effort to help position ourselves as the premier document management company in North America. The acquisition of Uarco Incorporated, completed on December 31, was a huge first step. UARCO(R) Acquisition Executing our strategic vision is possible because we have the balance sheet to support it. Even after an acquisition of this size, we have a net debit to total capital ratio of 25 percent, well within what your Board considers acceptable. One of the key metrics we apply to our performance is return on the capital we invest on your behalf. We expect the UARCO acquisition will fit within our parameters. The integration of UARCO is progressing as we expected and several former UARCO executives have joined our management team. The pairing of our companies was a natural. Internal Realignment We now have approximately 15 percent of the business forms market in North America, making us the largest, with more than 9,600 employees, 71 production facilities and more than 200 sales offices nationwide. To manage that growth, we restructures into two divisions. We concentrated our core businesses into the Document Management and Systems Division. Communicolor(R), Imaging Services, Stanfast(R), and Commercial Printing were combined to form the faster growing Impressions(R) Division. 8 Printed with Soy Ink on recycled paper, 20% Post-Consumer 600 Albany Street, Dayton, OH 45408 937.443.1000 fax 937.443.1239 www.strdreg.com [Recycle Logo] Advancing Technology We made significant investments in technology during 1997 reflecting emerging niches within the marketplace. Stanfast, our short run, print-on-demand group continued its historic double-digit annual growth, up 26 percent in 1997. The Imaging Services Group(SM), focusing on statement billing services, phone card and emerging smart card technologies, also posted impressive growth at 21 percent for the year. Branding Strategy To visually package our strategic initiatives, the Company completed an extensive branding strategy. The new corporate mark and branding system appear on the cover. The stylized "S" logo coveys a reliable, forward-looking and technology-based organization capable of rapid response. In addition to the new corporate mark, this branding strategy includes a targeted advertising campaign and ongoing market research. Perception is the customer's reality no matter what we think of ourselves. We will continue to take their pulse on an ongoing basis. Our goal is to understand the perception of our customers and to provide them with the quality and services they desire. Shareholder Value Our acquisition strategy came about only after we tested the decision against the interest of our shareholders. Senior management has a significant portion of their remuneration tied to the Company's total return performance. Employees We want to thank all of our dedicated employees for their support in 1997 as we established another record year in revenue and net income. 85 Years of Innovation Standard register enjoys a long history of bringing innovative ideas to the marketplace. We are quick to meet our customer's needs, working in the marketplace. We are quick to meet our customer's needs, working in partnership to enhance each one's overall document management cost effectiveness. Our momentum, coupled with our new strategic plan, will help move us into the new millenium. /s/ Paul H. Granzow /s/ Peter S. Redding Paul H. Granzow Peter S. Redding Chairman of the President and Board of Directors Chief Executive Officer 9 DOCUMENT MANAGEMENT OUR VISION IS TO BE THE RECOGNIZED LEADER IN OUR INDUSTRY BY IMPROVING THE PERFORMANCE OF ORGANIZATIONS THROUGH OUR OPERATIONAL EXCELLENCE IN DOCUMENT MANAGEMENT. OUR STRATEGY IS TO CONCENTRATE ON TRANSACTION-INTENSIVE MARKET SEGMENTS AND RESPOND WITH INNOVATIVE AND DIFFERENTIATED DOCUMENTS, SYSTEMS AND SERVICES. Peter S. Redding, President and C.E.O. STRATEGIC DIRECTION In early 1997, Standard Register launched a comprehensive strategic planning effort, driven by 30 of our top managers, as well as internationally recognized consulting and market research firms. We took a 360 degree look at our place in the industry, what our shareholders had to say, what our customers had to say, what our employees had to say. In fact, the year-long effort was one of the most extensive strategic planning processes in our 85-year history. We wanted to know the views of a wide variety of audiences. We asked what Standard Register does best, what our future target markets should be, and what our customers expect from us today and in the future. Throughout the process, two key messages continued to rise to the top. * Paper-based and electronic documents will coexist into the foreseeable future. * The printing of paper-based documents provides a significant market opportunity. We took those messages to build a vision for the future, one that not only continues our growth, but explodes it into the millennium. Standard Register established the following objectives for our future: * Standard Register will be the recognized leader in our industry with a strong financial portfolio of printing-related businesses. * Operational excellence will be key to our success. In 1997, the Company laid the groundwork for our 1998 strategic plan kick-off. Tomorrow's growth depends on the solid foundation put into place in 1997. It continues with the Company's strengthened focus on an aggressive growth strategy. * DOCUMENT MANAGEMENT * PRINT ON DEMAND * DIRECT MAIL/COMMERCIAL PRINTING SR 3 1997 10 DOCUMENT MANAGEMENT FROM PAPER-BASED TO ELECTRONIC DOCUMENT MANAGEMENT, STANDARD REGISTER UNDERSTANDS THE NEEDS OF TODAY'S BUSINESS CUSTOMER. OUR TRAINED PROFESSIONALS CAN PROVIDE A COMPREHENSIVE, ON-SITE DOCUMENT AUDIT AND ONGOING DOCUMENT MANAGEMENT SOLUTIONS DESIGNED TO ENHANCE EFFICIENCY AND COST-EFFECTIVENESS. [PHOTO] SR 4 1997 11 STANDARD REGISTER COMES TO CORESTATES WITH A FINE REPUTATION IN THE FORMS INDUSTRY. OUR CONTRACT WITH STANDARD REGISTER ENABLES CORESTATES TO FOCUS ON PROVIDING OUR CUSTOMERS WITH HIGH QUALITY FORMS AT MANAGED COSTS. WE ARE PLEASED TO HAVE THE OPPORTUNITY TO UTILIZE THE EXPERTISE STANDARD REGISTER OFFERS TO CORESTATES THROUGH THIS PARTNERSHIP. Bonnie Burns, Vice President, Purchasing Services, CoreStates DOCUMENT MANAGEMENT Business Forms At the very basis of what the Company does, and does well, is superior document management. Standard Register is the recognized industry leader in document security and document management solutions. From paper-based forms to electronic documents, Standard Register provides the expertise and quality our customers have come to expect. When combined with our best-in-class nationwide order, inventory, service and distribution systems, Standard Register offers a total information management solution. At the core of our innovative product offering is an ongoing commitment to research and development of the latest technology solutions that continue to bring value-added systems to the marketplace. Standard Register's commitment to technology is evident in the change of our product mix and the growth of our own technological support areas. In 1997, the Company invested more than $7 million to renovate 44,000 square feet of our Dayton facility. This renovation made room for expanding Information Services and other technology-based staff. The renovation included a significant investment in the latest printing press technology. Between 1997 and 1998, the Company will invest in excess of $40 million in technology for its operations and services nationwide. Alliances and partnerships are another important way Standard Register continues to grow our document management expertise and market share. In 1997, the Company established alliances and/or marketing partnerships with some of the most recognized experts in their respective markets including Danka, AFTECH, Kentek, Lexmark, and Schlumberger Electronic Transaction, Inc. SR 5 1997 12 AT KAISER ALUMINUM, OUR USE OF STANDARD REGISTER'S CHECK PROTECTION TECHNOLOGY WAS THE DECIDING FACTOR IN A COURT CASE THAT CHALLENGED OUR RESPONSIBILITY IN A FORGED CHECK SUIT. BECAUSE WE COULD SHOW THAT WE TOOK EVERY POS-SIBLE PRECAUTION AGAINST DOCUMENT FRAUD, THE COURT AGREED THAT WE WERE NOT LIABLE. WE HAVE TAKEN EVEN STRICTER MEASURES TO PROTECT OURSELVES AND NOW ALSO USE STANDARD REGISTER'S LASERLOCK(R) AND COPYBAN+ SOLUTIONS. Tom Edwards, Director of Treasury Operations, Kaiser Aluminum Document Security Standard Register owns a solid position as the leading document fraud prevention authority in the nation, offering complete documents, equipment and services to financial institutions and businesses. According to Bank Automation News/National Association for Banking Securities, more than 1 million bad checks enter the banking system every day. Document fraud is an issue that Standard Register can help a customer manage. A study conducted by Business Week magazine estimates an annual loss of $12.6 billion due to check forgery. To combat this forgery, Standard Register offers the latest, state-of-the-art technology to aid in preventing document fraud. From our CopyBan, to batch processing equipment, we offer solutions for the marketplace. In 1997, Standard Register introduced the latest version of LinkUp(R), a networked MICR check printing system that offers secure printing and tracking of certificates, accounts payable and payroll checks, and other official documents. We also introduced AuthentiCHEK(R) a first-of-its-kind system to quickly verify the accuracy and authenticity of documents, including checks, currency, and negotiable instruments such as event tickets. Throughout the year, we continued our Executive Seminars on Document Fraud Prevention. The goal of the program is to help businesses understand the growing threat of document fraud, their liability, and the impact it could have on their business. By sharing our expertise, Standard Register continues to step forward as a valuable partner to businesses. SR 6 1997 13 [SAMPLE OF CHECK WITH SECURITY FEATURES] VERIFY DOCUMENT AUTHENTICITY, COLORED AREA MUST CHANGE GRADUALLY AND EVENLY FROM DARK TO LIGHT FROM TOP TO BOTTOM (2) (3) 00-5678 CHECK NO. [LOGO] STANDARD REGISTER (1) ------- 1234 123456 PAY (4) TO THE ORDER OF DATE CHECK AMOUNT VOID SAMPLE ANY BANK - ANYTOWN, U.S.A. NON-NEGOTIABLE COPYBAN+ANTI-FRAUD PROTECTION - PATENTS4,227,720,4,310,180; 5,197,765;5340,159 123456 123456789 00000 12345 (6)(7)(8) Safety Paper [] THE ORIGINAL DOCUMENT HAS A REFLECTIVE WATERMARK ON THE BACK [] HOLD AT AN ANGLE TO VIEW WHEN CHECKING THE ENDORSEMENT. [] This document is protected by these Standard Register security features: CHECK FACE PRINTING (1) Custom pantograph Background for copy protection (2) Warning Bands (3) Microline (4) Dual Component Numbering Ink (5) MICR with MICR Consecutive Numbers SAFETY PAPER (6) Sensitive Inks- Face (7) Variable Diagonol Laid Lines - Back (8) Reflective Watermark - Back DOCUMENT SECURITY STANDARD REGISTER IS THE LEADING DOCUMENT FRAUD PREVENTION AUTHORITY IN THE NATION. WHEN BUSINESSES WANT TO KNOW HOW TO PROTECT THEMSELVES AND THEIR CUSTOMERS FROM DOCUMENT FRAUD, THEY TURN TO STANDARD REGISTER. THE ABOVE PAYROLL CHECK SAMPLE DEPICTS SEVERAL OF STANDARD REGISTER'S UNIQUE SECURITY FEATURES. SR 7 1997 14 SMARTworks STANDARD REGISTER PRESENTS A COMPLIMENTARY SMARTWORKS DEMO CD. THIS IS A LIVE, INTERACTIVE DISC. YOU MAY PERUSE SMARTWORKS CAPABILITIES BY FOLLOWING THE DETAILED INSERT INSTRUCTIONS. [SMARTworks CD and Envelope] INSTALLATION GUIDELINES [SMARTworks logo(TM)] TO INSTALL UNDER WINDOWS 95(R) OR WINDOWS NT(R) 4.0; 1. Before inserting the SMARTworks(TM) CD-ROM, close all running programs including toolbars. 2. Insert the CD, SMARTworks(TM) will guide you through the setup process; follow the instructions on the screen. NOTE: If the instructions do not appear: * Click Start Menu, point and click Run. * Type d:\setup.exe (if "d" is the letter of your CD-ROM drive). 3. After the SMARTworks(TM) setup is complete, you will be asked to install Adobe Acrobat(R) Reader. NOTE: Adobe Acrobat(R) Reader is required to run parts of the demo *If you have Adobe Acrobat Reader, select no to skip this installation. *If Not, select yes and follow the instructions on the screen. 4. Congratulations, you're ready to run the demo by double-clicking on the SMARTwork(TM) Demi cion located on the screen (your desktop). NOTE: To run the SMARTworks(TM) Demo, it is necessary to have the CD in the CD-ROM drive. (more info on back) [Standard Register logo] SYSTEM REQUIREMENTS FOR THE SMARTWORKS(TM) DEMO: * Windows(R) 95/NT(R) 4.0 or above * Pentium-75 MHZ desktop computer or laptop * High color display * 16MB RAM * Audio capability * 4X CD-ROM drive * 15MB available hard drive space * Web browsers supported: Microsoft(R) Internet Explorer 3.0/ Netscape(R) 3.0 or above UNINSTALL INSTRUCTIONS FOR THE SMARTWORKS(TM) DEMO: 1. Click the Start menu, point to settings, and then choose Control Panel. 2. Double Click Add-Remove Programs. 3. In the Add-Remove Programs properties dialog box, click the Install/ Uninstall tab. 4. In the list of software that can be removed by windows, click SMARTworks(TM) Demo. 5. Click Add/Remove, and then follow the directions on your screen. NOTE: If necessary, click NO to removing common files used by other applications. 6. Click OK, the SMARTworks(TM) Demo has successfully been uninstalled. NOTE: Use them instructions to uninstall Adobe Acrobat(R) Reader, except click Adobe Acrobat(R) Reader 3.01 instead of SMARTworks(TM) Demo in step 4. This material may not be copied in whole or in park, without the express written permission of Standard Register. All brands and product names are trademarks or registered trademarks of their respective companies. Copyright (c) 1998 The Standard Register Company. All Rights Reserved. SR 8 1997 15 ONE OF THE MAJOR REASONS WE CHOSE STANDARD REGISTER AS OUR DOCUMENT MANAGEMENT PARTNER WAS THEIR INTEGRATED ELECTRONIC COMMERCE AND DOCUMENT MANAGEMENT SYSTEM - - SMARTWORKS. Tariq Hassan, Director, Strategic Sourcing, Barnett Banks, Inc. SMARTworks In April 1997, Standard Register made a significant move forward in electronic document management by using the Microsoft(R) suite of development tools with SMARTworks. These tools provide a modular approach to managing printed and electronic documents. Driven by the Company's role as a leading consultant in document management, Standard Register offers continued tool enhancements to this best-in-class desktop solution. SMARTworks brings document managers, creators and consumers together on-line in a real-time environment. Access is available via the Internet or Intranet. Integration with Standard Register's warehousing and distribution/requisition/order entry systems is another value-added benefit. Standard Register SMARTworks offers flexible, up-to-date information, as well as distributed access with centralized control. SMARTworks is already impacting the marketplace for our largest customers. Our research indicates that customer satisfaction continues to focus on the ability to meet the needs of the large customer in one stop; that is, combining document flow management, printing, fulfillment, requisitioning and warehousing. This total solution is exactly what customers will expect in the future. Thanks to SMARTworks, Standard Register is able to provide that scalable solution today. Whether the industry is healthcare, financial or general business, SMARTworks enables businesses to reduce costs and paper while increasing efficiency. Columbia HCA is implementing Standard Register's Less-Paper Strategy. In 1997, our comprehensive team of document management experts worked with Columbia to create 200 new standard forms, potentially eliminating up to 39,000 custom SKU's. SR 9 1997 16 AT THOMASTON MILLS, WE NEEDED A COMPANY THAT COULD PROVIDE US WITH FLEXIBILITY TO RESPOND TO OUR CUSTOMERS NEEDS. THAT'S WHY WE CHOSE STANDARD REGISTER. THEY WERE ABLE TO PROVIDE US A COMPREHENSIVE LABELING SOLUTION THAT MET THE CRITERIA OUR VENDORS REQUIRED. THE ABILITY TO LABEL CARTONS ON-LINE AND IMMEDIATELY NOTIFY OUR MAINFRAME OF THEIR STATUS, WHILE VERIFYING VENDOR REQUIREMENTS WAS THE ANSWER WE WERE LOOKING FOR. BEING ABLE TO CONTROL THE LABEL FORMATS AND RESPOND TO OUR CUSTOMERS' REQUEST FOR SPECIAL COMPLIANCE LABELING WAS THE KEY. STANDARD REGISTER'S LABELING SYSTEM SOLUTION ALLOWED US TO DO THAT. Pete Key, Assistant Manager of Data Processing, Thomaston Mills Label Management High-performance labels can play an integral role in shortening production cycles. Effective label management improves business processes and controls costs. Today's business environment demands integrated label management to complement a well-planned document management approach. Standard Register's proactive approach to label management heightens cost and production efficiency. We provide a full range of labeling services, from automated label design and cataloging to inventory control, on-demand printing of variable labels and just-in-time delivery of complete kits to the assembly line. Standard Register produces flexographic, screen and offset printed labels, bar code/automatic ID systems, pressure sensitive labels, compliance labels and variable image products that use the latest laser and thermal transfer technology. Form/label combinations are also an important part of this growing market segment. Superior label management eliminates redundancy, maximizes design efficiency and lowers total product inventory. It can also contribute to liability protection by ensuring that all products are complete with the appropriate warnings, instructions and approvals. The addition of the UARCO product line broadens and complements the Standard Register line of label offerings. SR 10 1997 17 PRINT ON DEMAND LABEL MANAGEMENT STANDARD REGISTER PROVIDES LABELS TO CUSTOMERS IN MANY DIFFERENT INDUSTRIES. AS A CONTRACTUAL SUPPLIER TO THE NATION'S THREE LARGEST HOSPITAL BUYING ORGANIZATIONS, STANDARD REGISTER UNDERSTANDS THE UNIQUE NEEDS OF THE HEALTHCARE INDUSTRY. THE DEPICTED LABEL/BAR CODE APPLICATION PROVIDES ACCURACY IN TRACKING PATIENT AND ANCILLARY SERVICES. THIS IS ANOTHER INDICATION OF THE DEPTH OF OUR LABEL MANAGEMENT OFFERINGS AND THE SUPERIOR QUALITY OUR CUSTOMERS DEMAND. [PHOTO] SR 11 1997 18 STANFAST ON DEMAND PRINTING STANDARD REGISTER NOW OPERATES 38 PRINT ON DEMAND CENTERS NATIONWIDE. THIS GROWING NETWORK OFFERS SHORT-RUN, JUST-IN-TIME, QUALITY PRINTING SERVICES TO OUR CUSTOMERS. OUR SMARTWORKS SOLUTION CAN ALSO BE USED TO DOWNLOAD FILES TO THE NEAREST STANFAST CENTER FOR ENHANCED REQUISITIONING AND FULFILLMENT. THE FINANCIAL PAGES CONTAINED IN THIS DOCUMENT, AND DEPICTED BELOW, WERE PRINTED BY STANFAST, INDICATING THE HIGH-QUALITY OF OUR PRINT ON DEMAND NETWORK. [PHOTO] SR 12 1997 19 OUR PARTNERSHIP WITH STANDARD REGISTER PROVIDES A WIN-WIN SITUATION FOR KEYCORP AND ITS CUSTOMERS. BY OUTSOURCING OUR PRINTING, WAREHOUSING AND DISTRIBUTION EFFORTS TO A SINGLE SOURCE PARTNER, WE NOT ONLY ELIMINATED OUR DUPLICATE DOCUMENTS, BUT WE ALSO CENTRALIZED ALL PROCUREMENT ACTIVITIES. THIS REDUCES OUR ADMINISTRATIVE COSTS AND MAKES OUR PERSONNEL AVAILABLE FOR CUSTOMER SERVICE AND REVENUE-GENERATING ASSIGNMENTS. Daniel Lesczynski, Vice President, Strategic Sourcing, KeyCorp PRINT ON DEMAND Print On Demand Market One of the fastest growth areas of the Company continues to be the print on demand market. This outsourcing network offers just-in-time, short-run cut sheets, as well as short-run process and digital color. Customers recognize the value of outsourcing print and distribution operations to Standard Register through our nationwide Stanfast network. The customer receives the value-added from accessing our technology, service and equipment, without further investing their own capital. Research indicates that the $22 billion print on demand market will continue to grow by 22 percent annually. Standard Register is a recognized leader in this market segment, and expects to continue to capitalize on it in the future. Stanfast The quantity you want, when you want it, where you want it. That is the idea behind Standard Register's Demand Printing Strategy. Whether it is a brochure or a business form, Stanfast provides just-in-time production of business documents. Stanfast operates networked Digital Print Centers from Boston to Honolulu serving corporate America. In fact, we believe our Stanfast Group is one of the largest distributed print networks in the United States. The continued demand of our Stanfast network reflects the growth in this market. Between fourth quarter, 1996 and calendar year 1997 we added new Stanfast facilities in Secaucus, New Jersey; Savannah, Georgia; Charlotte, North Carolina; Memphis, Tennessee; Cleveland, Ohio; Portland, Oregon and Las Vegas, Nevada. The addition of the former UARCO Impressions(R) group brings Standard Register's print on demand network to 38 locations nationwide. SR 13 1997 20 STANDARD REGISTER WILL PLAY AN IMPORTANT ROLE IN OPENING NEW OPPORTUNITIES FOR SMART CARDS IN BUSINESS AND CONSUMER MARKETS. WITH ITS DEPTH OF KNOWLEDGE AND EXPERTISE IN CARD PERSONALIZATION AND DISTRIBUTION, AS WELL AS AN ESTABLISHED RECORD OF SUCCESSFUL CARD-BASED PROGRAMS, STANDARD REGISTER FILLS AN IMPORTANT NICHE IN OUR ASSOCIATES PROGRAM. Lou Bisasky, General Manager, Schlumberger Smart Cards, North America Phone Cards/Smart Cards Standard Register is a key player in driving the latest technology to marketplace. Our Imaging Services Group packages plastic cards for ATMs, prepaid phone usage, membership cards, frequent shopper databases, and numerous other plastic card programs. Phone cards are among the hottest technological advances to rapidly hit the consumer market in recent years. Some of the industry's largest companies turned to Standard Register in 1997 for their phone card and plastic card needs. Standard Register prints and distributes plastic cards and other materials for thousands of their customers across the country. New on the horizon is the advent of smart cards. Standard Register has the technology to personalize every card with a microprocessor chip that enables significant tracking of individual user purchases. Many expect U.S. smart card usage to rise, like its European counterparts. Smart cards offer the U.S. consumer secure, customized tracking of numerous applications. Smart cards can securely track banking transactions, frequent shopper database information, and even medical information. In September 1997, Standard Register announced an important partnership that strengthens our place in this emerging market niche. We are now partnering with Schlumberger Electronic Transactions, a unit of Schlumberger Ltd. of Europe and the leading single-source supplier of transaction solutions. We expect to be the leading resource for smart card technology as it continues its advent in the American marketplace. SR 14 1997 21 DIRECT MAIL/COMMERCIAL PRINTING [PHONE CARD ATTACHED] PHONE CARDS / SMART CARDS THE ATTACHED PHONE CARD IS A LIVE, COMPLIMENTARY PHONE CARD WITH FREE AIR TIME FOR YOUR USE. SOME OF THE INDUSTRY'S LARGEST COMPANIES TURN TO STANDARD REGISTER TO PRINT AND DISTRIBUTE PHONE AND PLASTIC CARDS. WE ARE ALSO AN EMERGING LEADER IN THE SMART CARD INDUSTRY. SR 15 1997 22 DIRECT MAIL PRINTING AND PERSONALIZATION COMMUNICOLOR PROVIDES HIGH SPEED, QUALITY COLOR PRINTING, SEGMENTATION AND PERSONALIZATION FOR THE DIRECT MAIL INDUSTRY. OUR DIRECT MAIL EXPERTS KNOW HOW TO PRODUCE MATERIALS THAT CATCH THE EYE AND INCREASE RESPONSE. THIS DEMONSTRATION PIECE REPRESENTS A VARIETY OF UNIQUE SERVICES COMMUNICOLOR CAN PROVIDE ON ANY ONE PRODUCT. [DIRECT MAIL DEMONSTRATION PIECE] SR 16 1997 23 WE RECENTLY TESTED THE NEW COMMUNICOLOR DONE-IN-ONE FORMAT AGAINST OUR DIRECT MAIL CONTROL. WE WERE IMMEDIATELY IMPRESSED WITH THE HIGH QUALITY OF THE PIECE AND PARTICULARLY THE ABILITY TO CONVEN-IENTLY MATCH SIX COMPONENTS IN ONE NESTED SET. THIS LOWERED THE MATCHING COSTS OF CONVENTIONALLY PRODUCED PACKAGES SIGNIFICANTLY. MORE IMPORTANTLY, THE RESPONSE WAS SO OVERWHELMING THAT WE COULDN'T OPEN THE REPLY ENVELOPES FAST ENOUGH! THE DONE-IN-ONE RESULTED IN A SUCCESSFUL, COST-EFFECTIVE TEST, SO WE ARE NOW USING IT AS OUR CONTROL PACKAGE. STANDARD REGISTER, AND SPECIFICALLY COMMUNICOLOR, UNDERSTANDS THIS BUSINESS. THEY KNOW HOW TO PRODUCE CREATIVE, HIGH-QUALITY PRODUCTS, AND QUALITY SERVICE. Russell B. Mason, Mail Fund Associates DIRECT MAIL / COMMERCIAL PRINTING High Color Printing and Personalization Demand within the estimated $66 billion commercial print/direct mail market also continues to grow. The Standard Register Communicolor group leads our expansion in this area. Publisher's Clearing House and Reader's Digest are just two of the many large volume customers that turn to Communicolor for their direct mail printing options. Communicolor is the direct mail partner for business marketing. They offer a full range of state-of-the-art technology to enhance the targeted direct mail message. From PopUps to PopOuts, from self-mailers to envelope packages, from matched multi-piece components to standard letter formats - Communicolor offers proven techniques that give direct mail its greatest impact. Special effects like foil, labels, scratch off and die-cuts continue to add interest and involvement resulting in higher response. In 1997, Communicolor introduced a new patented format, Done-in-One. It immediately gained customer recognition and use because of its many benefits. This simplified production process saves customers time and money without compromising quality or limiting creative options. It also eliminates complications associated with multiple component coordination. A Communicolor strength is its high-speed, sophisticated use of marketing data to personalize pieces beyond addresses - incorporating maps, product images, or other relevant and specialized offers with dramatic results. The financial, retail, and automotive industries are just a few other examples of the high volume, direct mail customers that utilize Communicolor's combined data manipulation and eye-catching print expertise. SR 17 1997 24 OUTSOURCING TO STANFAST FOR FEDEX PRINTING PROVIDES SPEEDY AND ON-TIME SERVICE, MEETING OUR LOGISTIC NEEDS. Vinod Nathani, Manager, Contract and Supplier Management, FedEx Brochure Capabilities Standard Register's growing color capabilities run the gamut from the latest digital color technologies to traditional commercial printing. Businesses achieve higher response rates through the use of color and targeted messages. Standard Register makes this possible. We not only help customers reduce the costs associated with printing, we can also help increase a company's revenue. For example, our digital printing capabilities allow businesses to use their database of customer information to accurately target marketing pieces to even an audience of one. Growth can be seen in many of our customer segments, including travel and tourism, manufacturing, health care, and finance, as they increase their use of color as a tool in their competition for customers and market share. Standard Register has the expertise to produce quality brochures, direct mail pieces, and business documents for the large and small customer. Our value-added services and processes continue to expand our reach in the marketplace and our solid financial performance. Standard Register continues to invest in digital printing technology through partnering with such print technology leaders as Heidelberg, Xerox, IBM an Xeikon. We have the equipment, technology and personnel to produce first-rate print materials. Coupled with our excellence in brochure quality and technology is a nationwide network of print centers and sales offices, ready to meet any distribution and fulfillment need. Our customers also appreciate the ease of downloading print files to the nearest Stanfast center, using our SMARTworks electronic document management solution. SR 18 1997 25 BROCHURE CAPABILITIES THE HEIDELBERG QUICKMASTER/DI(TM), SEEN HERE AT OUR CHARLOTTE STANFAST CENTER, IS CHANGING THE WAY CUSTOMERS THINK ABOUT SHORT-RUN COLOR. THANKS TO THIS AND OTHER STATE-OF-THE-ART EQUIPMENT, STANDARD REGISTER OFFERS THE CUSTOMER UNRIVALED QUALITY THROUGH OUR PRINT ON DEMAND CENTERS. WHEN LINKED WITH OTHER INTELLIGENT PRINTING SOLUTIONS, STANDARD REGISTER OFFERS A POWERFUL COMBINATION OF EXCELLENT PRINT QUALITY AND TOTAL DOCUMENT MANAGEMENT. [PHOTO] SR 19 1997 26 OFFICERS ======================================================== | | ALLAN F. SCOTT CRAIG J. BROWN Mr. Scott, 50, is Mr. Brown, 48, has served Corporate Vice President as Senior Vice President - - Operational Excellence. - Administration, He served as Vice Treasurer and Chief President, Operations Financial Officer since UARCO since 1996. 1995. | | ======================================== | | J. DOUG PATTERSON JOHN E. SCARPELLI Mr. Patterson, 43, is Mr. Scarpelli, 54, is Corporate Vice President Corporate Vice President - - Chief Information - Human Resources. He Officer. He served as served as Vice President Vice President - - Human Resources since Information Systems UARCO 1995. since 1997. ============================================================================================================================== | PETER A. DORSMAN Mr. Dorsman, 43, is Senior Vice President and General Manager - Document Management and Systems Division. He joined Standard Register in 1996. | | HARRY A. SEIFERT Mr. Seifert, 60, is Corporate Vice President and General Manager - Rotary Group. He served as Vice President - Manufacturing - Document Management Division since 1987.
SR 20 1997 27 PAUL H. GRANZOW Mr. Granzow, 70, has served as Chairman of the ============= Standard Register Board | of Directors since 1984. | | PETER S. REDDING | Mr. Redding, 59, has | served as President and | Chief Executive Officer ================-| since 1994. He is a | member of the Board of | Directors and the former | Executive Vice President | and Chief Operating | Officer. | | ============================================ | JOSEPH V. SCHWAN Mr. Schwan, 61, is Executive Vice President - - Chief Operating Officer. He joined Standard Register as Vice President, Sales and Marketing in 1991. | ========================== ========================== ======================== ======================== | | | | TIMOTHY J. WEBB BRIAN W. CALABRO H. FRANK COFFMAN JAMES H. DEYOUNG Mr. Webb, 48, is Senior Mr. Calabro, 41, is Mr. Coffman, 59, is Mr. DeYoung, 59, has Vice President and Corporate Vice President Corporate Vice President served as Corporate Vice General Manager - - Sales. He served as - Marketing and President - Impressions Division. He Vice President Sales in Communications, and International Operations served UARCO for 26 1997. Secretary. since 1995. years, most recently as President and CEO since early 1997. | | MICHAEL SPAUL Mr. Spaul, 50, is Corporate Vice President and General Manager - Communicolor. He served as the General Manager of Communicolor since 1995.
SR 21 1997 28 DIRECTORS ROY W. BEGLEY, JR. PETER S. REDDING Assistant Vice President and President and Chief Executive Investment Officer, Key Trust Officer of the Company. Corporation of Ohio, N.A.- a - Ex-officio member of all trust company based in committees of the Board of Cleveland, Ohio. Directors except for the Audit - - Member, Pension Advisory Committee Committee DENNIS L. REDIKER F. DAVID CLARKE, III Chief Executive Officer of Chairman of the Board of English China Clays plc - a Directors as well as Vice worldwide speciality minerals President and General Counsel and chemicals company. of Clarke-Hook Corporation - a - Member, Audit and real estate development, Compensation Committees construction, and management corporation. ANN SCAVULLO - - Chairman, Compensation Committee Vice President, Strategic - - Member, Audit and Executive Alliances and Joint Ventures, Committees Avon Products, Inc.- a global direct seller of beauty and PAUL H. GRANZOW related products. Senior Vice President and a - Member, Compensation director of The Weston Paper Committee and Manufacturing Co. He is co-trustee of the John Q. JOHN J. SCHIFF, JR. Sherman Trust. Chairman of the Board of - - Chairman of the Board of Directors of John J. & Thomas Directors of the Company R. Schiff & Co., Inc.- an - - Member, Executive Committee insurance agency. - Chairman, Audit and Pension GRAEME G. KEEPING Advisory Committees President of Information Resources Management CHARLES F. SHERMAN Associates - a consulting Personal Investments. firm. - Member, Pension Advisory and - - Member, Pension Advisory Executive Committees Committee JOHN Q. SHERMAN, II Manufacturers Representative, A. Rifkin Company - a manufacturer of specialty security packaging. - Member, Compensation Committee SR 22 1997 29 SAFE HARBOR STATEMENT: 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 WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS FOR FISCAL YEAR 1998 AND BEYOND TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS WHICH 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. FINANCIAL SECTION THE FINANCIAL SECTION OF THIS REPORT WAS PRINTED AT A STANDARD REGISTER STANFAST ON DEMAND PRINTING CENTER. THIS SECTION OF OUR ANNUAL REPORT DOCUMENT IS A GOOD EXAMPLE OF THE TYPE OF PROJECT THAT IS IDEAL FOR THE SERVICES OF STANDARD REGISTER'S STANFAST ON DEMAND PRINTING CENTERS, LOCATED THROUGHOUT THE UNITED STATES. Eleven Year Financial Summary 24 Management Discussion and Analysis 26 Independent Auditors' Report 30 Statement of Income 31 Balance Sheet 32 Statement of Cash Flows 34 Statement of Shareholders' Equity 35 Notes to Financial Statements 36 Operating Locations 46
SR 23 1997 30
ELEVEN YEAR FINANCIAL SUMMARY (Dollars in thousands, except per share amounts) 1997 1996 1995 1994 =============================================================================================================== SUMMARY OF OPERATIONS Revenue $ 965,674 $ 943,979 $ 903,240 $ 767,415 Cost of products sold 576,292 575,316 584,088 485,738 - --------------------------------------------------------------------------------------------------------------- Gross margin 389,382 368,663 319,152 281,677 Engineering and research 9,100 7,842 7,813 7,475 Selling and administrative 232,418 217,671 200,812 174,435 Depreciation and amortization 36,646 34,814 29,326 25,755 Interest 288 532 974 1,090 Restructuring costs -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Income before taxes 110,930 107,804 80,227 72,922 Income taxes 44,036 44,647 32,468 29,046 - --------------------------------------------------------------------------------------------------------------- Net income before cumulative effect of accounting changes 66,894 63,157 47,759 43,876 Cumulative effect of accounting changes -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Net income $ 66,894 $ 63,157 $ 47,759 $ 43,876 =============================================================================================================== BASIC PER SHARE DATA Income before cumulative effect of accounting change $ 2.35 $ 2.20 $ 1.67 $ 1.53 Cumulative effect of accounting change -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Net income $ 2.35 $ 2.20 $ 1.67 $ 1.53 Dividends paid 0.80 0.76 0.72 0.68 Shareholders' equity 17.17 15.80 14.36 13.42 DILUTED PER SHARE DATA Income before cumulative effect of accounting change $ 2.33 $ 2.19 $ 1.67 $ 1.53 Cumulative effect of accounting change -- -- -- -- - --------------------------------------------------------------------------------------------------------------- Net income $ 2.33 $ 2.19 $ 1.67 $ 1.53 YEAR-END FINANCIAL DATA Current ratio 3.5 to 1 4.0 to 1 3.4 to 1 3.6 to 1 Working capital $ 271,799 $ 259,148 $ 231,958 $ 231,811 Plant and equipment 260,035 235,958 215,974 198,805 Total assets 647,018 588,113 555,503 525,659 Long-term debt 4,600 4,600 4,600 11,071 17,546 Shareholders' equity 487,935 453,246 411,217 383,966 OTHER DATA Number of shares outstanding at year-end 28,418,364 28,689,906 28,639,312 28,607,891 Number of employees 6,440 6,445 6,439 6,201 Capital expenditures $ 61,287 $ 57,783 $ 48,332 $ 52,128
SR 24 1997 31
1993 1992 1991 1990 1989 1988 1987 ========================================================================================================= $ 722,120 $ 705,215 $ 693,712 $ 716,410 $ 708,876 $ 675,197 $ 666,661 452,163 446,772 447,452 464,514 451,133 429,205 403,801 --------------------------------------------------------------------------------------------------------- 269,957 258,443 246,260 251,896 257,743 245,992 262,860 7,754 7,803 7,854 9,647 9,222 8,624 8,267 166,267 163,711 162,350 169,462 161,720 154,122 162,877 24,553 22,955 22,028 21,368 19,269 16,620 16,380 1,142 2,124 3,012 4,462 5,571 5,316 5,700 -- -- -- 13,998 -- -- -- --------------------------------------------------------------------------------------------------------- 70,241 61,850 51,016 32,959 61,961 61,310 69,636 28,056 22,478 18,309 11,165 21,601 23,210 29,099 --------------------------------------------------------------------------------------------------------- 42,185 39,372 32,707 21,794 40,360 38,100 40,537 -- (13,362) -- -- -- -- -- --------------------------------------------------------------------------------------------------------- $ 42,185 $ 26,010 $ 32,707 $ 21,794 $ 40,360 $ 38,100 $ 40,537 ========================================================================================================= $ 1.47 $ 1.37 $ 1.14 $ 0.74 $ 1.35 $ 1.28 $ 1.36 -- (0.47) -- -- -- -- -- --------------------------------------------------------------------------------------------------------- $ 1.47 $ 0.90 $ 1.14 $ 0.74 $ 1.35 $ 1.28 $ 1.36 0.64 0.60 0.56 0.56 0.52 0.47 0.43 12.59 11.78 11.49 10.92 10.71 9.88 9.11 $ 1.47 $ 1.37 $ 1.14 $ 0.74 $ 1.35 $ 1.28 $ 1.36 -- (0.47) -- -- -- -- -- --------------------------------------------------------------------------------------------------------- $ 1.47 $ 0.90 $ 1.14 $ 0.74 $ 1.35 $ 1.28 $ 1.36 3.9 to 1 3.9 to 1 3.9 to 1 3.9 to 1 4.4 to 1 4.1 to 1 4.1 to 1 $ 243,573 $ 231,295 $ 217,697 $ 215,197 $ 232,725 $ 227,008 $ 219,646 174,252 169,122 169,026 161,856 155,281 141,096 132,339 502,333 482,463 463,560 453,725 459,196 443,784 425,217 24,454 35,189 41,940 48,736 55,282 61,990 360,983 338,317 329,333 312,626 319,070 294,269 271,456 28,671,710 28,711,317 28,673,397 28,635,124 29,797,608 29,779,613 29,812,644 5,769 5,724 5,852 6,168 6,321 6,355 6,284 $ 31,076 $ 22,697 $ 28,039 $ 29,822 $ 33,655 $ 31,240 $ 18,436
SR 25 1997 32 MANAGEMENT DISCUSSION AND ANALYSIS Significant Events In September 1994 the Company entered into a joint venture with Russian and Dutch partners to produce and market business forms in Russia. The investment was primarily in the form of refurbished equipment no longer required by the Company in its U.S. operations. As a result of the difficult business environment in Russia, the Company has written off its investment, taking pretax charges of $4.9 million and $1.0 million in years 1996 and 1997, respectively. In March 1995 the Company paid $7.7 million for the assets of FCA, a division of Capital Graphics, Inc. FCA was a producer of custom business forms located in Spring Grove, Illinois. In June 1995 the Company successfully defended a legal challenge to two of its key document security patents. Legal fees incurred in 1995 for this matter were $1.5 million. In August 1995 the Company entered into a settlement agreement with Travelers Express Company Inc. related to a patent dispute. Standard Register agreed to compensate Travelers and to make modifications to certain money order disbursing equipment. Compensation and related legal fees totaling $3.7 million were accrued in 1995. Equipment modifications were completed in 1997 at a cost of approximately $1.0 million. In September 1995 the Company invested $3.5 million in F3 Software Corporation, a provider of forms design and electronic forms application software. F3's software is a key component of the Company's document management software, SMARTworks. The Company's investment in F3 through year-end 1997 was $7.5 million, representing a 44 percent ownership share. During 1995 the Company sold its Hanford, California and Bedford, Pennsylvania plants, recording a total gain of $1.4 million. These two plants had been closed in previous years as part of restructuring programs. In August 1996 the Company purchased the assets of Piedmont Printing Company, Inc. in Charlotte, North Carolina for $2.5 million, providing needed capacity to support the growth in the Imaging Services and Stanfast Groups. In October 1996 the Company sold its Advanced Medical Systems Division (AMS). AMS developed and marketed materials management application software for hospitals. The decision to sell the division, which had 1996 revenue of $1.9 million, was based on continuing operating losses and a strategic decision to channel increased software development effort to electronic forms and related software tools offered under the Company's SMARTworks system. The sale did not have a material effect on 1996 earnings. During 1997 the Company entered into acquisition agreements totaling $7.0 million, establishing five new Stanfast Print Centers and an additional Imaging Services facility. On December 31, 1997 the Company acquired the stock of Uarco Incorporated for $245 million in cash. UARCO's 1997 sales of custom business forms, pressure sensitive labels, and related equipment and services were estimated at $470 million. The acquisition occurred after the December 28, 1997 closing date for the Company's fiscal year and is therefore not included in the 1997 financial statements. SR 26 1997 33 The Standard Register Company Results of Operations: 1997 Compared to 1996 Net Income for 1997 was a record $66.9 million, 5.9 percent above the $63.2 million reported for the prior year; Basic Earnings Per Share were $2.35 compared to 1996's $2.20 result. Total Revenue for 1997 was $965.7 million, up 2.3 percent from $944.0 million in fiscal 1996. The largest of the Company's three divisions, The Document Management Division, recorded a 4.3 percent increase in revenue to $702.2 million, reflecting estimated gains of 2.1 percent in units and 2.2 percent in average selling prices. Within this Division, traditional business forms and related services were down 1.9 percent, which compares favorably to an estimated 4.0 percent decline in industry demand for these products. Revenues for the Imaging Services and Stanfast Groups were up 21.0 percent and 26.2 percent, respectively, as the Company continued to exploit the significant growth opportunities in these markets. The Company believes it continues to pick up market share. The Communicolor Division reported revenue of $97.3 million, down 4.2 percent from the prior year. The decline was attributed in part to the mailing of fewer pieces by many of the Division's customers and competitive pressures from commercial printers equipped with high resolution imaging equipment. The Division took actions in 1997 to bolster its sales force and product offering and saw consistent progress during the year; after seven consecutive quarters of sales declines, fourth quarter revenue increased 5.0 percent. Revenue for the Document Systems Division was $163.1 million, down 0.9 percent from 1996's result. New equipment installations were off 7.7 percent reflecting the continuing transition from traditional forms handling equipment to newer generation intelligent printing systems. Equipment maintenance was also lower, off 2.9 percent, which resulted in part from an effort to trim unprofitable business; parenthetically, dollar gross margins in the service segment increased $3.5 million despite a $1.1 million drop in revenue. In other product segments, supplies revenue rose 4.2 percent, Pressure Sensitive label business grew 1.9 percent, and Electronic Services increased 19.4 percent. The gross margin improved from 39.1 percent of revenue in 1996 to 40.3 percent in the year just ended and was the major contributing factor to the Company's increased profitability. This improvement is attributed primarily to modestly improved pricing, lower average paper prices, and other manufacturing cost improvements. After peaking at year-end 1995, paper prices generally fell off until June 1997, when the first of the year's three price increases was recorded. The Company raised the prices of its forms in December 1997 in response to the rising costs of paper and other operating items. Notwithstanding a competitive marketplace, the Company has historically been able to recover higher paper costs over time by providing high value added products and services to its customers. Selling, administrative, and engineering costs increased 7.0 percent from $225.6 million in 1996 to $241.5 million in 1997. The Company has increased its investment in information services as part of a plan to implement integrated systems to improve order management and management reporting. In addition, the Company increased its level of sales support resource in the field as part of its program to improve overall sales productivity. A program to ensure that the Company's systems are Year 2000 compliant by mid-year 1999 has been undertaken; $.8 million was incurred in 1997 and an estimated $9.2 million will be spent during 1998 and 1999. Depreciation and amortization rose 5.3 percent in response to higher capital spending during the last two years. The income tax rate was 39.7 percent compared to 41.4 percent in 1996. The lower tax rate is primarily attributed to Russian joint venture capital losses incurred in 1996 and for which current or future tax benefits were not provided. SR 27 1997 34 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. Basic Earnings Per Share were $2.20 versus $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 $0.13 per share after tax, and a favorable LIFO inventory adjustment related to lower paper prices, also $0.13 per share. There was an unfavorable LIFO inventory adjustment in 1995 equivalent to $10.0 million after tax, or $0.34 per share. Excluding the LIFO adjustments in both years and the Russian joint venture adjustment, Net Income was 9.7 percent higher. Paper prices played significant roles in both years' results. The most recent paper cycle began in June 1994 as the strengthening worldwide 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. Revenue in 1996 was $944.0 million, 4.5 percent above the $903.2 million reported for 1995. The Document Management Division reported $673.5 million in revenue, a 7.4 percent increase over 1995. Traditional business forms revenue rose 0.9 percent while, the Imaging Services, Stanfast, and Distribution Services Groups produced a 23.7 percent overall increase. The Communicolor Division, a producer of promotional direct mail, reported revenue of $101.6 million, 11.5 percent below the 1995 result. This reduction reflected fewer mailings, lower paper prices, and new competition from commercial printers. Printing and imaging capacity added during 1996 was not fully utilized, producing lower operating margins. The Document Systems Division generated revenue of $164.7 million, up 6.0 percent compared to 1995's $155.3 million. Note that these results were restated for the reclassification of pressure sensitive labels and electronic services to this Division from the Document Management Division. 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 reflected a product rationalization as part of the Division's plan to focus primarily on intelligent printing applications. The drop in maintenance revenue reflected 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. SR 28 1997 35 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. Environmental Matters The Company has been named as one of a number of potential 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 The Company's financial condition remained very strong. The total balance of cash and short-term investments was $83.6 million at year end, compared to $4.6 million in total debt. Shareholders' equity ended the year at $487.9 million. Cash flow from operations was sufficient to fund a record $61.3 million of capital expenditures, $3.0 million of additional investment in the F3 Corporation, $22.8 million of dividends, $12.2 million of stock repurchases, and an increase in cash reserves of $17.8 million. Capital expenditures in 1997 went in major part for manufacturing capacity additions, automation of field sales offices, and internal application software development. The Company expects 1998 capital spending to be in the $65 million to $75 million range. On December 15, the Company entered into a $300 million unsecured five-year revolving credit agreement underwritten by KeyBank, N.A. to provide financing for the acquisition of Uarco Incorporated and other general corporate purposes. The Company closed on the $245 million acquisition on December 31, 1997, applying $15 million of corporate cash and borrowing $230 million under the revolver. Under the terms of the agreement, the interest rate is set periodically at a spread over the London Interbank Offered Rate (LIBOR); the spread is based upon the Company's ratio of net debt (debt less cash and short-term investments) to total capital. On a pro-forma basis, the Company's net debt to total capital ratio following the December 31 acquisition was 25.4 percent. The Company subsequently entered into a five-year swap agreement that effectively fixes the interest rate on $200 million of the debt at an all-in cost of 6.0 percent. In management's opinion, the combination of the revolving credit agreement and internally generated cash flow will be sufficient to provide for the Company's near-term financing needs. SR 29 1997 36 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 28, 1997 and December 29, 1996, and the related statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 28, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 28, 1997 and December 29, 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 28, 1997, in conformity with generally accepted accounting principles. /s/ Batell & Batell LLP Certified Public Accountants Dayton, Ohio January 23, 1998 SR 30 1997 37 The Standard Register Company STATEMENT OF INCOME
52 WEEKS ENDED 52 Weeks Ended 52 Weeks Ended DECEMBER 28 December 29 December 31 (Dollars in thousands, except per share amounts) 1997 1996 1995 =========================================================================================================== REVENUE $965,674 $943,979 $903,240 COST AND EXPENSE Cost of products sold 576,292 575,316 584,088 Engineering and research 9,100 7,842 7,813 Selling and administrative 232,418 217,671 200,812 Depreciation and amortization 36,646 34,814 29,326 Interest 288 532 974 - ------------------------------------------------------------------------------------------------------------ Total cost and expense 854,744 836,175 823,013 - ------------------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES 110,930 107,804 80,227 - ------------------------------------------------------------------------------------------------------------ INCOME TAXES Current 40,098 42,009 32,752 Deferred 3,938 2,638 (284) - ------------------------------------------------------------------------------------------------------------ Total income taxes 44,036 44,647 32,468 - ------------------------------------------------------------------------------------------------------------ NET INCOME $ 66,894 $ 63,157 $ 47,759 ============================================================================================================ EARNINGS PER SHARE Basic $2.35 $2.20 $1.67 ============================================================================================================ Diluted $2.33 $2.19 $1.67 ============================================================================================================
See accompanying notes. SR 31 1997 38 BALANCE SHEET
DECEMBER 28 December 29 (Dollars in thousands) 1997 1996 =========================================================================================================== ASSETS CURRENT ASSETS Cash and cash equivalents $ 67,556 $ 64,550 Short-term investments 16,055 1,215 Accounts receivable, less allowance for losses of $2,864 and $3,638, respectively 191,031 178,711 Inventories 85,546 86,152 Deferred income taxes 6,168 8,206 Prepaid pension expense 5,371 952 Prepaid other expense 7,091 5,201 - ----------------------------------------------------------------------------------------------------------- Total current assets 378,818 344,987 - ----------------------------------------------------------------------------------------------------------- PLANT AND EQUIPMENT Buildings and improvements 67,874 61,711 Machinery and equipment 237,320 224,702 Office equipment 67,324 60,894 - ----------------------------------------------------------------------------------------------------------- Total 372,518 347,307 Less accumulated depreciation 155,634 141,021 - ----------------------------------------------------------------------------------------------------------- Depreciated cost 216,884 206,286 Plant and equipment under construction 39,070 26,160 Land 4,081 3,512 - ----------------------------------------------------------------------------------------------------------- Total plant and equipment 260,035 235,958 - ----------------------------------------------------------------------------------------------------------- OTHER ASSETS 8,165 7,168 - ----------------------------------------------------------------------------------------------------------- Total assets $647,018 $588,113 ===========================================================================================================
See accompanying notes. SR 32 1997 39 The Standard Register Company
DECEMBER 28 December 29 (Dollars in thousands) 1997 1996 =========================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 25,296 $ 20,225 Dividends payable 5,968 5,738 Accrued compensation 34,817 34,355 Accrued other expense 4,581 5,536 Accrued taxes, except income 6,977 5,902 Income taxes payable 1,155 2,624 Customer deposits 21,003 4,185 Deferred service contract income 7,222 7,274 - ----------------------------------------------------------------------------------------------------------- Total current liabilities 107,019 85,839 - ----------------------------------------------------------------------------------------------------------- LONG-TERM LIABILITIES Long-term debt 4,600 4,600 Retiree health care obligation 28,779 27,643 Deferred income taxes 18,685 16,785 - ----------------------------------------------------------------------------------------------------------- Total long-term liabilities 52,064 49,028 - ----------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Common stock, $1.00 par value: Authorized 50,500,000 shares Issued 1997 - 24,308,437; 1996 - 24,204,392 24,308 24,204 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 31,599 28,705 Retained earnings 444,259 400,387 Cost of common shares in treasury: 1997 - 615,073 shares; 1996 - 239,486 shares (16,956) (4,775) - ----------------------------------------------------------------------------------------------------------- Total shareholders' equity 487,935 453,246 - ----------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $647,018 $588,113 ===========================================================================================================
SR 33 1997 40 The Standard Register Company STATEMENT OF CASH FLOWS
52 WEEKS ENDED 52 Weeks Ended 52 Weeks Ended DECEMBER 28 December 29 December 31 (Dollars in thousands) 1997 1996 1995 ============================================================================================================ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 66,894 $ 63,157 $ 47,759 Add (deduct) items not affecting cash: Depreciation and amortization 36,646 34,814 29,326 Loss (gain) on sale of assets 346 1,508 (1,309) Unrealized gain on investments (294) -- -- Loss on other investments 1,852 4,383 830 Provision for deferred income taxes 3,938 2,638 (284) Increase (decrease) in cash arising from changes in assets and liabilities: Accounts receivable (12,320) 2,998 (29,757) Inventories 606 11,665 2,856 Other assets (6,309) (2,494) 202 Accounts payable and accrued expenses 6,789 1,762 8,159 Income taxes payable (1,469) 90 256 Customer deposits 16,818 (4,149) (1,473) Deferred income (52) (1,181) 1,095 - ------------------------------------------------------------------------------------------------------------ Net adjustments 46,551 52,034 9,901 - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 113,445 115,191 57,660 - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to plant and equipment (61,287) (57,783) (48,332) Proceeds from sale of plant and equipment 432 1,692 3,330 Purchase of short-term investments (15,000) -- (1,330) Sales of short-term investments 455 115 -- Additions to other investments (3,028) (1,008) (5,555) Other investing activities (36) -- (675) - ------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (78,464) (56,984) (52,562) - ------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt -- (6,471) (6,471) Proceeds from issuance of common stock 2,998 1,317 1,000 Purchase of treasury stock (12,181) (341) (582) Dividends paid (22,792) (21,808) (20,634) - ------------------------------------------------------------------------------------------------------------ Net cash used in financing activities (31,975) (27,303) (26,687) - ------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,006 30,904 (21,589) Cash and cash equivalents at beginning of year 64,550 33,646 55,235 - ------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 67,556 $ 64,550 $ 33,646 ============================================================================================================ SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid during the year for: Interest $ 141 $ 565 $ 999 Income taxes $ 41,317 $ 42,115 $ 32,496 Non-cash investing activities: Note receivable from sale of assets $ -- $ 650 $ --
See accompanying notes. SR 34 1997 41 The Standard Register Company STATEMENT OF SHAREHOLDERS' EQUITY
52 WEEKS ENDED 52 Weeks Ended 52 Weeks Ended DECEMBER 28 December 29 December 31 (Dollars in thousands) 1997 1996 1995 ============================================================================================================ COMMON STOCK Beginning balance $ 24,204 $ 24,142 $ 24,085 Add shares issued under: Stock Incentive Plan 50 55 57 Dividend Reinvestment Plan 22 7 -- Stock Option Plan 32 -- -- - ------------------------------------------------------------------------------------------------------------ Ending balance 24,308 24,204 24,142 - ------------------------------------------------------------------------------------------------------------ CLASS A STOCK 4,725 4,725 4,725 - ------------------------------------------------------------------------------------------------------------ CAPITAL IN EXCESS OF PAR VALUE Beginning balance 28,705 27,450 26,507 Add excess of market over par value of shares issued under: Stock Incentive Plan 1,562 1,062 943 Dividend Reinvestment Plan 709 193 -- Stock Option Plan 623 -- -- - ------------------------------------------------------------------------------------------------------------ Ending balance 31,599 28,705 27,450 - ------------------------------------------------------------------------------------------------------------ RETAINED EARNINGS Beginning balance 400,387 359,334 332,501 Add net income for year 66,894 63,157 47,759 Less cash dividends declared (23,022) (22,104) (20,926) - ------------------------------------------------------------------------------------------------------------ Ending balance 444,259 400,387 359,334 - ------------------------------------------------------------------------------------------------------------ TREASURY SHARES Beginning balance (4,775) (4,434) (3,852) Cost of common shares purchased (12,181) (341) (582) - ------------------------------------------------------------------------------------------------------------ Ending balance (16,956) (4,775) (4,434) - ------------------------------------------------------------------------------------------------------------ Total shareholders' equity $487,935 $453,246 $411,217 - ------------------------------------------------------------------------------------------------------------
See accompanying notes. SR 35 1997 42 The Standard Register Company NOTES TO FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) 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 document management services. 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 28, 1997, December 29, 1996, and December 31, 1995 had 52 weeks. Cash Equivalents The Company classifies as cash equivalents all highly liquid investments with original maturities 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. Short-term Investments Debt securities for which the Company has the intent and ability to hold to maturity are classified as held-to-maturity and are stated at amortized cost. Securities are classified as trading when held for short-term periods in anticipation of market gains and are reported at fair market value, with unrealized gains and losses included in income. 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. Finished products include printed 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. Impairment of asset value is recognized whenever events or circumstances indicate that carrying amounts are not recoverable. SR 36 1997 43 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 $36,431 in 1997, $34,601 in 1996, and $29,143 in 1995. Estimated asset lives are: Classification Years ================================================================================ Buildings and improvements 10-40 Machinery and equipment 5-15 Office equipment 5-15
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 to the customer. 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. Earnings Per Share Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" is effective for the Company's 1997 fiscal year. This new standard changes the manner in which earnings per share (EPS) amounts are calculated and presented. Basic EPS is the per share allocation of net income available to shareholders based on the weighted average number of shares outstanding during the period. Diluted EPS represents the per share allocation of net income based on the weighted average number of shares outstanding plus all common shares that potentially could have been issued under the Company's stock option program. Accounting for Stock Options The Company follows Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees" in accounting for its employee stock options. Under APB 25, no compensation expense is recognized in the financial statements because the exercise price of employee stock options equals the market price of the underlying stock on the date of the grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." New Accounting Pronouncement In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information". This Statement significantly changes the way public business enterprises report information about operating segments in annual financial statements. SFAS 131 uses a "management approach" to disclose financial and descriptive information about an enterprise's reportable operating segments which is based on reporting information the way management organizes the segments for making operating decisions and assessing performance. SFAS 131 will be effective for the Company's 1998 fiscal year and the reported business segments will reflect the organizational structure of the Company at that time. SR 37 1997 44 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 (FIFO) method had been used, these inventories would have been $35,601 higher at December 28, 1997 and $34,885 higher at December 29, 1996. Inventories at the respective year-ends are as follows:
DECEMBER 28 December 29 (Dollars in thousands) 1997 1996 ================================================================================================ Finished products $58,675 $55,449 Jobs in process 16,500 18,573 Materials and supplies 10,371 12,130 - ------------------------------------------------------------------------------------------------ Total $85,546 $86,152 ================================================================================================
NOTE 3 - Long-term Debt Long-term debt consists of industrial development revenue bonds issued by Rutherford County, Tennessee. Interest is payable semi-annually at 6.125%. Required annual principal payments subsequent to December 28, 1997 are as follows: 1998 - None; 1999 - $525; 2000 - $555; 2001 - $590; and 2002 - $630. NOTE 4 - Income Taxes The provision for income taxes consists of the following:
(Dollars in thousands) 1997 1996 1995 =============================================================================================================== Current Federal $32,933 $33,285 $26,386 State and local 7,165 8,724 6,366 Deferred 3,938 2,638 (284) - --------------------------------------------------------------------------------------------------------------- Total $44,036 $44,647 $32,468 ===============================================================================================================
The significant components of the deferred tax expense (benefit) are as follows:
(Dollars in thousands) 1997 1996 1995 =============================================================================================================== Depreciation $2,357 $0,853 $(1,128 Pension 2,039 1,712 391 Inventories 110 267 976 Compensation and benefits (431) (33) (1,331) Allowance for doubtful accounts 312 111 (690) Retiree health care benefits (457) (620) (393) Other 8 348 (365) - ---------------------------------------------------------------------------------------------------------------- Total $3,938 $2,638 $ (284) ================================================================================================================
SR 38 1997 45 The components of the net deferred tax asset and liability as of December 28, 1997 and December 29, 1996 are as follows:
DECEMBER 28 December 29 (Dollars in thousands) 1997 1996 =============================================================================================================== Deferred tax asset: Allowance for doubtful accounts $ 1,153 $ 1,465 Inventories 2,524 2,634 Compensation and benefits 5,127 4,696 Pension (2,739) (700) Other 103 111 - --------------------------------------------------------------------------------------------------------------- $ 6,168 $ 8,206 - --------------------------------------------------------------------------------------------------------------- Deferred tax liability: Depreciation $ 30,272 $ 27,915 Retiree health care benefits (11,587) (11,130) - --------------------------------------------------------------------------------------------------------------- $ 18,685 $ 16,785 ===============================================================================================================
The reconciliation of the statutory federal income tax rate and the effective tax rate follows:
1997 1996 1995 ================================================================================================================= Statutory federal income tax rate 35.0% 35.0% 35.0% State and local income taxes 5.3 5.3 5.3 Other (.6) 1.1 .2 - ------------------------------------------------------------------------------------------------------------------ Effective tax rate 39.7% 41.4% 40.5% ==================================================================================================================
NOTE 5 - Capital Structure 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 23,693,364 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 6 - Earnings Per Share Data The following per share data show the amounts used in computing earnings per share (EPS) and the dilutive effects of stock options:
52 WEEKS ENDED DECEMBER 28, 1997 NET SHARES INCOME (Dollars in thousands, except per share amounts) INCOME (000'S) PER SHARE ============================================================================================================== Basic $66,894 28,498 $2.35 Dilutive effect of stock options -- 203 Diluted $66,894 28,701 $2.33 52 Weeks Ended December 29, 1996 Net Shares Income (Dollars in thousands, except per share amounts) Income (000's) Per Share ============================================================================================================== Basic $63,157 28,687 $2.20 Dilutive effect of stock options -- 118 Diluted $63,157 28,805 $2.19 52 Weeks Ended December 29, 1995 Net Shares Income (Dollars in thousands, except per share amounts) Income (000's) Per Share ============================================================================================================== Basic $47,759 28,653 $1.67 Dilutive effect of stock options -- -- Diluted $47,759 28,653 $1.67
SR 39 1997 46 The effects of stock options on diluted EPS are reflected through the application of the treasury stock method. Under this method, proceeds received by the Company, based on assumed exercise, are hypothetically used to repurchase the Company's shares at the average market price for the period. NOTE 7 - 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 options have a term of ten years. 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. The options are exercisable over periods determined when granted. 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. Options to purchase 231,000 shares were granted on December 28, 1996 with an exercise price of $32.375 per share. Options to purchase 214,000 shares were granted on December 27, 1997 with an exercise price of $35.3125 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 dates, 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 reduced as follows:
(Dollars in thousands except per share amounts) 1997 1996 1995 =============================================================================================================== Net income As reported $66,894 $63,157 $47,759 Pro forma 65,101 62,512 47,759 Basic earnings per share As reported $002.35 $002.20 $001.67 Pro forma 2.28 2.18 1.67 Diluted earnings per share As reported $002.33 $002.19 $001.67 Pro forma 2.27 2.17 1.67
The fair values of options granted in fiscal years 1997, 1996, and 1995 were estimated at $10.58, $10.37, and $6.12 per share, respectively, using the Black-Scholes option-pricing model based on the following assumptions:
1997 1996 1995 =============================================================================================================== Risk-free interest rate 5.7% 6.2% 5.4% Dividend yield 2.0% 2.0% 2.0% Expected life 5 years 5 years 5 years Expected volatility 29.7% 31.5% 31.2%
SR 40 1997 47 Following is a summary of the status of the Company's stock option plan during fiscal years 1997, 1996, and 1995:
1997 1996 1995 WEIGHTED Weighted Weighted AVERAGE Average Average SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price ==================================================================================================================== Outstanding, beginning of year 776,000 $23.772 550,000 $20.125 -- -- Granted 227,000 35.313 231,000 32.375 550,000 $20.125 Exercised (32,580) 20.125 -- -- -- -- Canceled (46,000) 21.728 (5,000) 20.125 -- -- - -------------------------------------------------------------------------------------------------------------------- Outstanding, end of year 924,420 776,000 550,000 ====================================================================================================================
Following is a summary of the status of stock options outstanding at December 28, 1997:
Number Number Exercise Remaining Outstanding Exercisable Price Term ================================================================================================================ 472,420 169,420 $20.125 8 years 225,000 123,600 32.375 9 years 227,000 -- 35.313 10 years - ---------------------------------------------------------------------------------------------------------------- 924,420 293,020 ================================================================================================================
NOTE 8 - 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. The Company has non-qualified plans which provide benefits in addition to those provided in the qualified plans. Pension fund assets are invested in a broadly diversified portfolio consisting primarily of publicly-traded common stocks and fixed income securities. Assumptions used in the respective accounting years to determine pension costs are as follows:
1997 1996 1995 ================================================================================================================== Discount rate 8.5% 8.5% 8.5% Rate of increase in compensation levels 5.0% 5.0% 4.0% Expected long-term rate of return on assets 10.5% 10.5% 9.5%
Pension costs consist of the following components:
(Dollars in thousands) 1997 1996 1995 =============================================================================================================== Service cost of benefits earned $ 6,476 $ 5,734 $ 4,776 Interest cost on projected benefit obligation 13,265 12,431 10,573 Actual gain on plan assets (51,987) (22,507) (24,657) Asset gain deferred 36,856 10,074 14,691 Amortization of transition asset (120) (605) (722) Amortization of prior service costs 1,950 1,950 1,898 Amortization of net loss from prior periods 117 62 -- Cost of early retirement window 1,118 -- -- - --------------------------------------------------------------------------------------------------------------- Net pension cost $ 7,675 $ 7,139 $ 6,559 ===============================================================================================================
SR 41 1997 48 The following table sets forth the plans' funded status and amounts recognized in the Company's balance sheet at the respective year ends.
DECEMBER 28, 1997 December 29, 1996 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 $127,611 $ 5,172 $115,115 $ 3,050 Non-vested 8,685 -- 8,724 390 - --------------------------------------------------------------------------------------------------------------- Total $136,296 $ 5,172 $123,839 $ 3,440 =============================================================================================================== Projected benefit obligation $169,206 $ 9,470 $155,513 $ 6,421 =============================================================================================================== Plan assets at fair value $204,935 $ -- $150,857 $ -- Plan assets greater (less) than projected benefit obligation $ 35,729 $ 9,470) $ (4,656) $(6,421) Unrecognized net (gain) loss (32,575) 4,290 61 1,806 Unrecognized prior service cost 7,509 1,439 9,227 1,670 Minimum liability adjustment -- (1,431) -- (495) Unrecognized transition asset (120) -- (240) -- - --------------------------------------------------------------------------------------------------------------- Prepaid (accrued) pension expense $ 10,543 $(5,172) $ 4,392 $(3,440) =============================================================================================================== Net asset recognized in balance sheet $5,371 $952 ===============================================================================================================
NOTE 9 - Postretirement Benefits Other Than Pensions In addition to providing pension benefits, the Company provides certain 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) 1997 1996 1995 =============================================================================================================== Service cost -- -- --- Interest cost $2,401 $2,728 $2,495 Amortization of net loss from prior periods -- 266 143 - --------------------------------------------------------------------------------------------------------------- Postretirement benefit cost $2,401 $2,994 $2,638 ===============================================================================================================
The funding policy is to pay claims as they occur. Payments for postretirement health benefits, net of retiree contributions, amounted to $1,265, $1,452 and $1,662 in 1997, 1996, and 1995, respectively. SR 42 1997 49 The funded status of the plan at December 28, 1997 and December 29, 1996 is as follows:
DECEMBER 28 December 29 (Dollars in thousands) 1997 1996 =============================================================================================================== Accumulated postretirement benefit obligation for retirees $25,597 $29,182 Plan assets -- -- - --------------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation in excess of plan assets 25,597 29,182 Unrecognized net gain (loss) 3,182 (1,539) - --------------------------------------------------------------------------------------------------------------- Retiree health care obligation shown in balance sheet $28,779 $27,643 ===============================================================================================================
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 10.5% in 1997 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 $298 increase in the service and interest components of expense for 1997 ($341 for 1996) and a $3,048 increase in the postretirement benefit obligation at December 28, 1997 ($3,503 increase at December 29, 1996). NOTE 10 - Concentration of Credit Risk Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash and equivalents, short-term investments, and trade receivables. The Company's 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 11 - Fair Value of Financial Instruments
DECEMBER 28, 1997 December 29, 1996 FAIR CARRYING Fair Carrying (Dollars in thousands) VALUE AMOUNT Value Amount =============================================================================================================== Assets Cash and equivalents $67,556 $67,556 $64,550 $64,550 Securities held to maturity 760 760 1,215 1,215 Trading securities 15,295 15,295 -- -- Liabilities Long-term debt $ 4,695 $ 4,600 $ 4,654 $ 4,600
The carrying amounts of cash equivalents and securities held to maturity approximate fair value because of the short maturities of those instruments. The fair value of trading securities is based on quoted market prices. The fair value of long-term debt is estimated based on quoted market prices for similar issues of the same remaining maturities. SR 43 1997 50 NOTE 12 - Commitments and Contingencies Purchase commitments for capital improvements aggregated $8,972 at December 28, 1997. Also, the Company has purchase commitments for equipment for resale of $483 at December 28, 1997. The Company has no purchase agreements with suppliers extending beyond normal quantity requirements. The Company is obligated under several leases expiring at various dates. Annual expense under these leases was $25,450 in 1997, $23,320 in 1996, and $21,692 in 1995. Rental commitments under existing leases at December 28, 1997, are:
Computer and Real Sales Transportation Other (Dollars in thousands) Estate Offices Equipment Equipment Total ======================================================================================================== 1998 $7,703 $7,672 $308 $2,856 $18,539 1999 6,517 6,092 287 2,290 15,186 2000 5,302 4,366 161 1,844 11,673 2001 3,496 3,053 141 1,135 7,825 2002 1,895 1,535 99 999 4,528 Later years -- 172 230 54 456
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 13 - Subsequent Events On December 31, 1997, the Company acquired all outstanding shares of Uarco Incorporated (Uarco), a subsidiary of Settsu Corporation of Osaka, Japan, pursuant to a definitive purchase agreement dated November 27, 1997. Uarco produces and markets business forms, pressure sensitive labels, business equipment, supplies, and workflow systems to the U.S. market. At December 31, 1997, Uarco had approximately 3,200 employees located in 18 production facilities and 125 sales offices. The unaudited sales of Uarco during 1997 were approximately $470 million, excluding operations divested prior to the acquisition date. The purchase price was $245 million in cash, of which $230 million was financed under a new five-year, unsecured bank revolving credit agreement. The credit line provides for borrowings up to $300 million and bears interest at a floating rate of LIBOR plus a spread dependent upon the debt to equity ratio. On January 23, 1998, $200 million of the outstanding debt was swapped to an effective fixed interest rate of 6.09%. The acquisition will be accounted for as a purchase in fiscal 1998. The purchase price will be allocated to the assets acquired and liabilities assumed based upon their estimated fair market values. The purchase price allocation will be determined during 1998 when additional information becomes available. Results of operations for Uarco will be included with those of the Company beginning in fiscal 1998. SR 44 1997 51 NOTE 14 - Quarterly Financial Data (Unaudited) Summarized quarterly financial data follow:
QUARTERS ENDED MARCH 30 JUNE 29 SEPTEMBER 28 DECEMBER 28 (Dollars in thousands except per share amounts) 1997 1997 1997 1997 ======================================================================================================================== Revenue $230,114 $236,467 $237,243 $261,850 Gross margin* 93,589 96,537 97,454 101,802 Net income 14,948 16,999 16,250 18,697 Basic earnings per share .52 .60 .57 .66 Diluted earnings per share .52 .59 .57 .65 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 Basic earnings per share .47 .56 .56 .61 Diluted earnings per share .47 .56 .56 .60 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 Basic earnings per share .38 .42 .41 .46 Diluted earnings per share .38 .42 .41 .46
* Revenue less cost of products sold. SR 45 1997 52 OPERATING LOCATIONS CORPORATE HEADQUARTERS 600 Albany St. Dayton, Ohio 45408 DOCUMENT MANAGEMENT SALES Dayton, Ohio Corporate Vice President, Sales B.W.Calabro General Sales Manager, National Accounts Dayton, Ohio M.T. Jacoutot FIELD OPERATIONS Area Vice President - East Boundbrook, New Jersey A.T. Batten General Sales Managers New England Boston, Massachusetts C.W. Copley New York Philadelphia, Pennsylvania R.E. Assini Mideast Columbus, Ohio G.L. Cherson Southeast Jacksonville, Florida R.R.Launey Area Vice President - West Chicago, Illinois K.J. Petrie General Sales Managers Central Chicago, Illinois G.M. West Midwest St. Louis, Missouri T.P. Lawrence Southwest Dallas, Texas J.B. Morey West Phoenix, Arizona R.W. Campbell DOCUMENT MANAGEMENT AND SYSTEMS DIVISION Dayton, Ohio Senior Vice President and General Manager P.A. Dorsman MANUFACTURING Corporate Vice President and General Manager, Rotary Group H.A. Seifert General Manager Pressure Sensitive Group R.W. Stone PLANTS Cincinnati, Ohio Manager D.E. Haemmerle Corning, Iowa Manager R.L. Barger Dayton, Ohio Manager R.A. Cousino Dayton, Ohio Manager, Manufacturing E.F. Ponikwia Deep River, Connecticut Manager R.B. Merritt Fayetteville, Arkansas Manager W.H. Bequette Fulton, Kentucky Manager M.S. Fenwick Kirksville, Missouri Manager R.B. Herrick Middlebury, Vermont Manager G.A. Wendel Murfreesboro, Tennessee Manager H.J. Troyer Porterville, California Manager P.L.Jones Radcliff, Kentucky Manager R.A. Mead Rocky Mount, Virginia Manager H.J. Pechie Roseburg, Oregon Manager J.W. Miller Salisbury, Maryland Manager S.G. Miller Shelbyville, Indiana Manager E.C. Hlava Spring Grove, Illinois Manager D.R. Petersen Tampa, Florida Manager L.D. McConnell Terre Haute, Indiana Manager G.W. Stubbs Toccoa, Georgia Manager D.E. Ayers Watseka, Illinois Manager L.E. Mattern York, Pennsylvania Manager J.L. Galbraith General Manager Electronic Services/ Workflow Group M.D. Pratt General Manager Document Systems Group T.S. Spencer DOCUMENT SYSTEMS SALES Dayton, Ohio Director, Sales T.M. Marcellino Regional Sales Managers Eastern Marlton, New Jersey E.M. Mamrak Southern Raleigh, North Carolina D.F. Donovan Midwest Oakbrook Terrace, Illinois L.A. Noethlich Western Irvine, California S.T. Svehlak Automatic Identification Systems Group Barrington, Illinois L. DiDomenico IMPRESSIONS DIVISION Dayton, Ohio Senior Vice President and General Manager T.J. Webb General Manager Stanfast D.E. Olson General Manager Imaging Services Group R.D. Fehrman MANUFACTURING Stanfast Print Centers (38) Imaging Services Centers (7) Corporate Vice President and General Manager, Communicolor M. Spaul COMMUNICOLOR SALES General Sales Manager Reston, Virginia D.DiLucente MANUFACTURING Eudora, Kansas S.J. Thorton Newark, Ohio Director of Manufacturing J.S. Hardy INTERNATIONAL OPERATIONS Dayton, Ohio Corporate Vice President, International Operations J.H. DeYoung INTERNATIONAL ASSOCIATES Argentina, Ramon Chozas, S.A. Australia, Print Media Group Belgium, Proforms B.V. Canada, Data Business Forms, Ltd. Columbia, FESA S.A. Ecuador, Offsetec S.A. England, Adare Printing Group Plc. France, Ruwa-Bell S.A. Germany, Proforms B.V. India, Hitech Print Systems, Ltd. Indonesia, Pt.Jasuindo Tiga Perkasa Ireland, Adare Printing Group Plc. Israel, Be'eri Printers Italy, STEP S.p.A. Japan, Dai Nippon Printing Co., Ltd. Jordon, Nashashibi & Ebbini Forms Luxembourg, Proforms B.V. Mexico, Calidata S.A. de C.V. Netherlands, Proforms B.V. New Zealand, Wickliffe Press Ltd. Norway, Nassjo-Tryckeriet AB Panama, FESA S.A. Portugal, Roberto Zubiri, S.A. South Africa, Lithosaver Systems Ltd. Spain, Roberto Zubiri, S.A. Sweden, Nassjo-Tryckeriet AB Switzerland, Baumer AG United Kingdom, WBF (Adare Printing Group Plc.) Venezuela FESA S.A. SR 46 1997 53 SHAREHOLDER INFORMATION There are approximately 3,300 shareholders of record of the Company's Common stock and 16 shareholders of record of the Company's Class A stock. Management estimates the number of beneficial owners of the Company's securities to be approximately 7,500. The shares of The Standard Register Company are traded on the New York Stock Exchange under the symbol SR. The range of prices and dividends paid per share for each quarterly period during the two most recent fiscal years are presented below:
Market Price Per Share (in $) 35.50 35.75 35.25 35.56 32.50 28.87 27.87 31.75 32.00 High 24.37 25.37 30.50 30.50 23.37 22.87 Low 19.00 Close 23.62 24.62 27.62 32.50 32.75 30.63 33.13 35.31 1Q96 2Q96 3Q96 4Q96 1Q97 2Q97 3Q97 4Q97
Dividend Paid Per Share (in $) 1Q96 2Q96 3Q96 4Q96 1Q97 2Q97 3Q97 4Q97 .19 .19 .19 .19 .20 .20 .20 .20
Annual Meeting The Annual Meeting of Shareholders will be held Wednesday, April 15, 1998, at 11:00 a.m. Eastern Daylight Savings Time at The Mandalay Banquet Center, 2700 East River Road, Dayton, Ohio. A formal notice will be mailed to each shareholder of record prior to the meeting. Form 10-K Report Upon request, the Company will provide a copy of its Annual Report on Form 10-K. Requests should be addressed to Secretary, The Standard Register Company, P.O. Box 1167, Dayton, Ohio 45401. Phone 937-443-1506. Transfer Agent and Registrar For assistance on stock transfers or the replacement of lost or stolen certificates, contact the Company's Transfer Agent and Registrar, Wachovia Shareholder Services, P.O. Box 8218, Boston, Massachusetts 02266-8218. Phone 800-633-4236. SR 47 1997 54 INVESTOR CONTACT Robert J. Cestelli Associate Vice President - Investor Relations The Standard Register Company P.O. Box 1167 Dayton, Ohio 45401 937-443-1304 Fax 937-443-1205 SHAREHOLDER CONTACT Kathryn A. Lamme Corporate Vice President - Secretary and Deputy General Counsel (effective 4/1/98) The Standard Register Company P.O. Box 1167 Dayton, Ohio 45401 937-443-1506 Fax 937-443-3431 GENERAL COUNSEL Nicholas C. Hollenkamp Senior Partner Turner, Granzow & Hollenkamp 50 East Third Street Dayton, Ohio 45402 TRANSFER AGENT AND REGISTRAR Wachovia Bank of North Carolina, N.A. P.O. Box 3001 Winston-Salem, North Carolina 27102 800-633-4236 AUDITORS Battelle & Battelle LLP Certified Public Accountants 2000 West Dorothy Lane Dayton, Ohio 45439 PRODUCT AND SERVICE INFORMATION 800-755-6405 INTERNET http://www.stdreg.com [STANDARD REGISTER/LISTED ON THE NEW YORK STCOK EXCHANGE LOGO] All trademarks are the property of their respective owners. SR 48 1997 55 [LOGO Standard Register(R)] The Standard Register Company 600 Albany Street Dayton, Ohio 45408 1-800-755-6405 NYSE:SR http://www.stdreg.com Printed in the U.S.A. (C) 1998 The Standard Register Company EX-23 3 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, 333-15851 and 333-43055. /S/ BATTELLE & BATTELLE LLP BATTELLE & BATTELLE LLP Dayton, Ohio March 27, 1998 -32- EX-24 4 EXHIBIT 24 1 EX-24 POWER OF ATTORNEY ----------------- 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 11, 1997. /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/ A.L. BAUGHN - -------------------------- --------------------------------- P. H. Granzow, Chairman of A. L. Baughn, the Board of Directors of Vice President & Secretary 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 11, 1997. /S/ Brynne A. Dailey --------------------------------- Brynne A. Dailey Notary Public [ Notary Seal ] -33- EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STANDARD REGISTER COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-28-1997 DEC-28-1997 67,556 16,055 193,895 2,864 85,546 378,818 415,669 155,634 647,018 107,019 4,600 0 0 29,033 458,902 647,018 962,447 965,674 576,292 854,744 0 1,051 288 110,930 44,036 66,894 0 0 0 66,894 2.35 2.35
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