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