UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 27, 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
(Exact name of registrant as specified in its charter)
OHIO CORPORATION 31-0455440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 ALBANY STREET, DAYTON, OHIO, 45401
(Address of principal executive offices)
(Zip Code)
(937) 443-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF October 22,1998
Common Stock - $1.00 Par Value 23,733,742
Class A Stock - $1.00 Par Value 4,725,000
<PAGE>
INDEX
Page
Part I Financial Information
Item 1. Financial Statements
Statement of Income
for the 13 Weeks Ended September 27, 1998 and September 28, 1997 and
for the 39 Weeks Ended September 27, 1998 and September 28, 1997 3
Balance Sheet
as of September 27, 1998 and December 28, 1997 4
Statement of Cash Flows
for the 39 Weeks Ended September 27, 1998 and September 28, 1997 5
d) Note to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 9
Part II Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
Exhibit Index 12
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements of the Registrant included herein have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although certain information
normally included in financial statements prepared in accordance with
generally accepted accounting principles has been condensed or omitted,
the Registrant believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
financial statements are read in conjunction with the financial statements
and notes thereto included in the Annual Report on Form 10-K of the
Registrant for the year ended 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.
<TABLE>
<CAPTION>
STATEMENT OF INCOME (In Thousands except Data Per Share)
Third Quarter Nine Months
13 Weeks Ended 39 Weeks Ended
Sept. 27, Sept. 28, Sept. 27, Sept.28
1998 1997 1998 1997
<S> <C> <C> <C> <C>
TOTAL REVENUE $340,648 $237,243 $1,018,359 $703,824
COSTS AND EXPENSES
Cost of Products Sold 210,409 139,789 643,059 416,244
Engineering and Research 2,305 2,227 7,528 7,020
Selling and Administrative 82,609 58,059 251,668 171,010
Depreciation and Amortization 12,802 9,712 39,847 28,339
Interest 3,371 71 10,415 218
Total Costs and Expenses 311,496 209,858 952,517 622,831
INCOME BEFORE INCOME TAXES 29,152 27,385 65,842 80,993
Income Taxes 11,935 11,135 26,566 32,796
NET INCOME $17,217 $16,250 $39,276 $48,197
Average Number of Shares Outstanding (000s):
Basic 28,454 28,498 28,442 28,498
Diluted 28,603 28,699 28,607 28,699
DATA PER SHARE:
Earnings Per Share
Basic $ 0.61 $ 0.57 $ 1.38 $ 1.69
Diluted 0.60 0.57 1.37 1.68
Dividends Paid $ 0.21 $ 0.20 $ 0.63 $ 0.60
</TABLE>
See note to financial statements.
a) BALANCE SHEET (Dollars in Thousands)
<TABLE>
Sept. 27, Dec. 28,
ASSETS 1998 1997
<S>
CURRENT ASSETS <C> <C>
Cash and Cash Equivalents $ 36,351 $ 67,556
Short Term Investments 834 16,055
Accounts Receivable, less Allowance for Losses 269,449 191,031
Deferred Accounts Receivable, less Allowance
for Losses 2,476 -
Inventories
Finished Products 127,939 58,675
Jobs in Process 28,980 16,500
Materials and Supplies 10,361 10,371
Deferred Income Tax 6,168 6,168
Prepaid Expense 11,860 12,462
Total Current Assets 494,418 378,818
PLANT AND EQUIPMENT
Buildings and Improvements 96,219 67,874
Machinery and Equipment 327,469 237,320
Office Equipment 63,357 67,324
Total 487,045 372,518
Less Accumulated Depreciation 193,240 155,634
Depreciated Cost 293,805 216,884
Construction in Process 68,896 39,070
Land 9,137 4,081
Total Plant and Equipment 371,838 260,035
OTHER ASSETS
Goodwill, Patents, and Other 32,148 3,099
Prepaid Pension Expense 75,742 -
Investment in F3 4,785 5,066
Total Other Assets 112,675 8,165
TOTAL ASSETS $978,931 $647,018
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable 53,886 25,296
Dividends Payable 3,570 5,968
Accrued Compensation 37,832 34,817
Accrued Other Expense 9,150 4,581
Accrued Taxes, except Income 10,203 6,977
Income Taxes Payable 4,064 1,155
Customer Deposits 19,802 21,003
Deferred Service Contract Income 10,594 7,222
Accrued Restructuring 22,276 -
Total Current Liabilities 171,377 107,019
LONG-TERM LIABILITIES
Long-Term Debt 234,630 4,600
Deferred Compensation 2,653 -
Retiree Healthcare 54,477 28,779
Deferred Income Taxes 652 18,685
Total Long-Term Liabilities 292,412 52,064
SHAREHOLDERS EQUITY
Common Stock, $1.00 Par Value
24,384,570 Shares Issued in 1998 24,385
24,308,437 Shares Issued in 1997 24,308
Class A Stock, $1.00 Par Value
4,725,000 Shares Issued 4,725 4,725
Capital in Excess of Par Value 33,740 31,599
Retained Earnings 471,583 444,259
Treasury Stock
651,152 Shares at Cost (18,279)
615,073 Shares at Cost (16,956)
Common Stock held in Grantor Trust
26,284 Shares at Cost (1,012) -
Total Shareholders Equity 515,142 487,935
TOTAL LIABILITIES AND SHAREHOLDER EQUITY $978,931 $647,018
</TABLE>
See Note to Financial Statements.
<PAGE>
STATEMENT OF CASH FLOWS (Dollars in Thousands)
<TABLE>
Nine Months
39 Weeks Ended
Sept. 27, Sept. 28,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $39,276 $48,197
Add Items Not Affecting Cash:
Depreciation and Amortization 39,847 28,339
Loss on Sale of Facilities 94 245
Net Change to Investments 21 1,267
Net Change to Retiree Healthcare (253) 1,075
Net Change to Deferred Compensation 2,653 -
Increase/(Decrease) in Cash Arising from Changes in Assets and Liabilities:
Accounts Receivable 3,743 10,056
Deferred Accounts Receivable 48,293 -
Inventories (65,735) (1,022)
Other Assets 3,306 417
Prepaid Pension (3,409) -
Accounts Payable (5,006) 362
Accrued Expenses (2,786) (4,052)
Accrued Restructuring Expenses (17,684) -
Income Taxes Payable 808 (371)
Customer Deposits (1,200) 17,004
Deferred Service Income 3,372 1,078
Net Adjustments 6,064 54,398
Net Cash Provided by Operating Activities 45,340 102,595
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Facilities 1,159 401
Additions to Plant and Equipment (55,457) (44,456)
Acquisition (245,000) -
Maturity of Short-Term Investments 30,481 -
Purchase of Short-Term Investments (15,000) (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 (287,217) (62,083)
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 1,948 2,794
Redemption of Common Stock (2,052) (12,181)
Dividends Paid (17,930) (17,108)
Net Cash Provided by (Used in) Financing
Activities 210,672 (26,495)
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS (31,205) 14,017
Cash and Cash Equivalents, Beginning 67,556 64,550
CASH AND CASH EQUIVALENTS, ENDING $36,351 $78,567
</TABLE>
See note to financial statements.
a) NOTE TO FINANCIAL STATEMENTS
c) 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)
<TABLE>
Third Quarter Nine Months
13 Weeks Ended 39 Weeks Ended
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997 .
<S> <C> <C> <C> <C>
Total Revenue $340,648 $354,677 $1,018,359 $1,048,047
Net Income 17,217 9,220 39,276 25,541
Earnings Per Share
Basic $ 0.61 $ 0.33 $ 1.38 $ 0.90
Diluted 0.60 0.32 1.37 0.89
</TABLE>
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS FROM OPERATIONS
Results of Operations
Net Income for the third quarter ended September 27, 1998 was $17.2
million or $.61 per Basic Share, compared to $16.3 million and $.57 per
Basic Share for the third quarter 1997. On a diluted basis, Net Income
Per Share was $.60 in the current quarter versus $.57 in the prior year.
Revenue for the third quarter was $340.6 million, 44% above the comparable
quarter of 1997.
The acquisition of Uarco, Incorporated on December 31, 1997 figured
prominently in the results of operations reported thus far in 1998. Uarcos
operating losses for the year 1997 were $39.2 million on revenues of
$473.6 million. An overview of the plan to integrate Uarco was provided
in the 10Q report for the second quarter 1998. In brief, the plan was to
integrate Uarco quickly, to reduce operating costs, and to improve the
price levels in acquired accounts that were not profitable. The Companys
financial objective was to achieve meaningful improvements in earnings in
each successive quarter of 1998.
The integration of Uarco began promptly after the December 31st close and
has proceeded on schedule. The previous 10Q report outlined sales office
consolidations, the closing of the former Uarco headquarters, the
consolidation of two forms plants and four smaller print centers into
nearby Standard Register facilities, and other cost reduction actions
taken in the first half of the year. During the third quarter, the
Company announced the closure of an additional forms plant in Fulton,
Kentucky and three additional print centers; in each case the majority
of productive capacity was transferred to other manufacturing facilities.
In managements judgment, the actions taken thus far in 1998 will
produce annualized savings in excess of $55 million. Although there has
been some progress, the Company has not yet achieved targeted price
increases on unprofitable Uarco accounts. Efforts to raise prices have
been hampered by weakening paper prices as the year has progressed.
The lower paper costs have helped margins, but have not provided good
footing for raising forms prices. In managements judgment, account
profitability will improve during 1999 as a result of a stable or
strengthening paper market and the introduction of new value added
products and services to former Uarco accounts.
A summary statement of operations is shown below. Dollar figures shown
are in millions except for per share amounts. In keeping with our
stated financial objective of achieving improving earnings in sequential
quarters, the comments following the table will address the third quarter
in comparison to the two preceding quarters of the year.
<TABLE>
Revenue 1st Qtr 2nd Qtr 3rd Qtr
<S> <C> <C> <C>
Shipments $375.1 $358.1 $343.0
Uarco Pre-98 Storage -31.0 -24.4 -2.4
Revenue 344.1 333.7 340.6
% Increase over prior year 49.5% 41.1% 43.6%
Gross Margin 121.6 123.5 130.2
% Revenue 35.3% 37.0% 38.2%
SG&A Expenses 88.6 85.7 84.9
EBITDA 33.0 37.8 45.3
% Revenue 9.6% 11.3% 13.3%
Depreciation & Amortization 13.5 13.5 12.8
Interest Expense 3.4 3.6 3.4
Pretax Profit 16.1 20.7 29.1
Income Taxes 6.4 8.3 11.9
% Rate 39.6% 40.1% 40.9%
Net Income 9.7 12.4 17.2
% Revenue 2.8% 3.7% 5.0%
Earnings Per Share Basic $.34 $.44 $.61
Diluted $.34 $.43 $.60
</TABLE>
Prior to January 1, 1998, Uarco and Standard Register had different revenue
recognition policies with respect to custom forms placed in company
warehouses for subsequent delivery to customers. Uarco took revenue credit
when the forms went into the warehouse; Standard Register recorded revenue
upon shipment from the warehouse to the customer. The value of custom
finished storage inventory in Uarco warehouses as of the acquisition was
carried as a deferred accounts receivable and could not be recognized as
revenue when Standard Register delivered it to customers following the
acquisition. The value of these deferred accounts receivable shipped
in the first, second, and third quarters was $31.0 million, $24.4 million,
and $2.4 million respectively. Most of the January 1, 1998 balance of
arco deferred accounts receivable has been shipped to customers as of
the end of the third quarter.
The Companys business plan anticipated the loss of some Uarco revenue
as a natural consequence of the acquisition, reflecting expected sales
turnover and efforts to improve unprofitable accounts. The pattern of
revenue in the first three quarters is primarily a function of the loss
of former Uarco business. The rate of revenue erosion is expected to
slow over the next few quarters. Seasonal factors should push fourth
quarter revenue above the third quarter level.
The gross margin continued its improving trend reflecting the effects
of higher revenue, the cost reductions described earlier, and lower
paper prices. The Company recorded a favorable LIFO inventory
adjustment of approximately $2.0 million in the quarter.
SG&A expenses continued to decline, again the result of the cost
reduction program. Acquisition integration costs, including equipment
relocation, training, and other expenditures not chargeable to the
opening restructuring liability, were $3.6 million in the quarter, compared
to $2.0 million in the first half of the year. Expenses to ensure that
the Company's systems will be Year 2000 compliant were $1.2 million in
the quarter, compared to $3.4 million in the first half. The Company
expects to complete its Year 2000 system modifications and testing by mid
year 1999, spending an additional $4.5 million.
The drop in Depreciation and Amortization reflects the closure of
facilities described earlier. Interest expense was slightly lower in
the quarter as a result of lower rates; the balance of debt was unchanged.
The tax rate was slightly higher in the third quarter, reflecting a lesser
relative amount of tax exempt interest income on investments.
Financial Condition
The balance of Cash, Cash Equivalents, and Short-term Investments increased
$1.5 million in the quarter to $37.2 million. Debt, which financed the
majority of the $245 million Uarco acquisition on December 31, 1997,
remained at $234.6 million. Netting the cash against the debt produces
a net debt to net capital ratio of 27.7%. The Company's financial
condition remains very strong.
Capital expenditures were $12.0 million for the quarter. The current outlook
for the year calls for capital spending in the $70 million to $75 million
range, below our earlier estimate of $80 million.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material legal proceedings within the reporting period
that the Company has been involved with beyond those conducted in a normal
course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
Exhibit Description
Financial Data Schedule (filed only electronically with the SEC)
Form 8K was not filed within the reporting period.<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf by
the undersigned thereunto duly authorized.
October 22, 1998
/s/ C. J. Brown By C. J. Brown, Sr. Vice President, Administration,
Treasurer,
Chief Financial Officer, and Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Standard
Register Company financial statements for the nine months ended September 27,
1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> SEP-27-1998
<CASH> 36,351
<SECURITIES> 834
<RECEIVABLES> 289,991
<ALLOWANCES> 18,066
<INVENTORY> 167,280
<CURRENT-ASSETS> 494,418
<PP&E> 565,078
<DEPRECIATION> 193,240
<TOTAL-ASSETS> 978,931
<CURRENT-LIABILITIES> 171,377
<BONDS> 234,630
0
0
<COMMON> 29,110
<OTHER-SE> 486,032
<TOTAL-LIABILITY-AND-EQUITY> 978,931
<SALES> 1,016,813
<TOTAL-REVENUES> 1,018,359
<CGS> 643,059
<TOTAL-COSTS> 942,102
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,161
<INTEREST-EXPENSE> 10,415
<INCOME-PRETAX> 65,842
<INCOME-TAX> 26,566
<INCOME-CONTINUING> 39,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,276
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.37
</TABLE>
