UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________
Commission File Number 01-1097
THE STANDARD REGISTER COMPANY
(Exact name of registrant as specified in its charter)
OHIO CORPORATION 31-0455440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 ALBANY STREET, DAYTON, OHIO, 45401
(Address of principal executive offices)
(Zip Code)
(937) 221-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding as of November 5, 1999
Common Stock - $1.00 Par Value 23,128,008
Class A Stock - $1.00 Par Value 4,725,000
<PAGE>
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
a) Statement of Income
for the13 Weeks Ended October 3, 1999 and
September 27, 1998 and for the 39 Weeks
Ended October 3, 1999 and September 27,
1998 4
b) Balance Sheet
as of October 3, 1999 and January 3,
1999 5
c) Statement of Cash Flows
for the 39 Weeks Ended October 3,
1999 and September 27, 1998 6
d) Note to Financial Statements 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-10
Item 3. Quantitative and Qualitative
Disclosure About Market Risk 11
Part II - Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use
of Proceeds 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote
of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements of the Registrant included herein have
been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Although
certain information normally included in financial statements
prepared in accordance with generally accepted accounting
principles has been condensed or omitted, the Registrant believes
that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial
statements are read in conjunction with the financial statements
and notes thereto included in the Annual Report on Form 10-K of
the Registrant for the year ended January 3, 1999, and Current
Report on Form 8-K as filed on April 15, 1999.
The financial statements included herein reflect all adjustments
(consisting only of normal recurring accruals) which, in the
opinion of management, are necessary to present a fair statement
of the results for the interim periods. The results for interim
periods are not necessarily indicative of trends or of results to
be expected for a full year.
a) STATEMENT OF INCOME (In Thousands except Data Per Share)
<TABLE>
Third Quarter Nine Months
13 Weeks Ended 39 Weeks Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1999 1998 1999 1998
------- --------- ------- ---------
<S> <C> <C> <C> <C>
TOTAL REVENUE $325,900 $318,322 $988,523 $947,416
------- ------- ------- -------
COSTS AND EXPENSES
Cost of Products Sold 201,659 194,724 606,029 591,049
Engineering and
Research 2,061 2,172 6,174 7,214
Selling and
Administrative 84,355 80,157 258,626 242,358
Depreciation and
Amortization 13,326 10,451 38,379 32,910
Interest 3,413 3,371 10,419 10,415
------- ------- ------- -------
Total Costs and Expenses 304,814 290,875 919,627 883,946
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 21,086 27,447 68,896 63,470
Income Taxes 6,147 11,237 25,474 25,601
------- ------- ------- -------
Income From Continuing
Operations $14,939 $ 16,210 $43,422 $37,869
------- ------- ------- -------
Discontinued Operations:
Current Year (Loss)/Income,
Net of Tax 0 1,007 (509) 1,407
Gain on Disposal, Net of Tax 0 0 14,875 0
------- ------- ------- -------
NET INCOME $14,939 $ 17,217 $ 57,788 $ 39,276
------- ------- ------- -------
------- ------- ------- -------
Average Number of
Shares Outstanding -
Basic 27,976 28,454 28,171 28,442
Average Number of
Shares Outstanding -
Diluted 28,110 28,603 28,325 28,607
<PAGE>
EARNINGS PER SHARE DATA
- BASIC:
Income From Continuing
Operations $ 0.53 $ 0.57 $ 1.54 $ 1.33
Discontinued Operations,
Current Year
(Loss)/Income $ 0.00 $ 0.04 $ (0.02) $ 0.05
Gain on Disposal $ 0.00 $ 0.00 $ 0.53 $ 0.00
Net Income $ 0.53 $ 0.61 $ 2.05 $ 1.38
EARNINGS PER SHARE DATA
- DILUTED:
Income From Continuing
Operations $ 0.53 $ 0.56 $ 1.53 $ 1.32
Discontinued Operations,
Current Year
(Loss)/Income $ 0.00 $ 0.04 $ (0.02) $ 0.05
Gain on Disposal $ 0.00 $ 0.00 $ 0.52 $ 0.00
Net Income $ 0.53 $ 0.60 $ 2.03 $ 1.37
Dividends Paid Per Share $ 0.22 $ 0.21 $ 0.66 $ 0.63
See note to financial statements.
</TABLE>
b) BALANCE SHEET (Dollars in Thousands)
<TABLE>
Oct 3, Jan 3,
ASSETS 1999 1999
CURRENT ASSETS ------ ------
<S> <C> <C>
Cash and Cash Equivalents $ 63,169 $ 9,792
Short Term Investments 480 6,530
Accounts Receivable 271,416 302,261
Allowance for Losses (13,184) (14,158)
Inventories
Finished Products 115,437 104,982
Jobs in Process 9,118 18,075
Materials and Supplies 11,169 15,319
Deferred Income Taxes 19,065 19,065
Prepaid Expense 11,646 11,929
------- -------
Total Current Assets 488,316 473,795
PLANT AND EQUIPMENT
Buildings and Improvements 92,582 93,552
Machinery and Equipment 283,877 306,658
Office Equipment 66,577 98,209
------- -------
Total 443,036 498,419
Less Accumulated Depreciation 172,036 182,218
------- -------
Depreciated Cost 271,000 316,201
Construction in Process 53,346 44,732
Land 10,279 7,228
------- -------
Total Plant and Equipment 334,625 368,161
OTHER ASSETS
Goodwill 53,142 57,825
Prepaid Pension Expense 80,948 73,538
Other 14,900 11,758
------- -------
Total Other Assets 148,990 143,121
------- -------
TOTAL ASSETS $971,931 $985,077
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt 555 525
Accounts Payable 31,916 29,967
Dividends Payable - 6,251
Accrued Compensation 39,433 44,406
Accrued Other Expense 7,843 12,158
Accrued Taxes, except Income 5,748 9,329
Income Taxes Payable 15,575 1,335
Customer Deposits 263 3,138
Deferred Service Contract Income 8,841 8,404
Accrued Restructuring 11,958 14,843
------- -------
Total Current Liabilities 122,132 130,356
------- -------
LONG-TERM LIABILITIES
Long-Term Debt 203,520 234,075
Deferred Compensation 6,985 3,795
Retiree Healthcare 55,057 55,057
Deferred Income Taxes 31,416 40,829
------- -------
Total Long-Term Liabilities 296,978 333,756
------- -------
SHAREHOLDERS' EQUITY
Common Stock, $1.00 Par Value
24,454,317 Shares Issued in 1999 24,454
24,391,072 Shares Issued in 1998 24,391
Class A Stock, $1.00 Par Value
4,725,000 Shares Issued 4,725 4,725
Capital in Excess of Par Value 35,459 33,957
Accumulated Other Comprehensive Income (1,161) (1,161)
Retained Earnings 525,102 479,679
Treasury Stock
1,180,395 Shares at Cost (33,762)
701,152 Shares at Cost (19,614)
Common Stock held in Grantor Trust
59,047 Shares at Cost (1,996)
26,284 Shares at Cost - (1,012)
------- -------
Total Shareholders' Equity 552,821 520,965
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $971,931 $985,077
------- -------
------- -------
See note to financial statements.
</TABLE>
c) STATEMENT OF CASH FLOWS (Dollars in Thousands)
<TABLE>
Nine Months
39 Weeks Ended
Oct 3, Sept 27,
1999 1998
------ --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $57,788 $39,276
Add Items Not Affecting Cash:
Depreciation and Amortization 40,091 39,847
(Gain)/Loss on Sale of Plant Assets (23,252) 94
Net Change to Investments 6,050 21
Net Change to Retiree Healthcare 0 (253)
Net Change to Deferred Income Taxes (9,413) 0
Net Change to Deferred Compensation 3,190 2,653
Increase/(Decrease) in Cash Arising from
Changes in Assets and Liabilities:
Accounts Receivable 13,387 3,743
Deferred Accounts Receivable 631 48,293
Inventories (829) (65,735)
Other Assets (4,552) 3,306
Prepaid Pension (7,410) (3,409)
Accounts Payable and Accrued
Expenses (6,119) (7,792)
Accrued Restructuring Expenses (2,885) (17,684)
Income Taxes Payable 14,240 808
Customer Deposits (2,875) (1,200)
Deferred Service Income 438 3,372
------- --------
Net Adjustments 20,692 6,064
------- --------
Net Cash Provided by Operating
Activities 78,480 45,340
------- --------
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Facilities 98,149 1,159
Additions to Plant and Equipment (50,072) (55,457)
Acquisition (10,414) (245,000)
Maturity of Short-Term Investments - 30,481
Purchase of Short-Term Investments - (15,000)
Investment in F3/Keyfile Corporation (57) (1,000)
Purchase of Key Man Life Insurance
Policies 0 (2,400)
------- --------
<PAGE>
Net Cash Provided by (Used in)
Investing Activities 37,606 (287,217)
------- --------
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-Term Debt - 230,000
Payments of Long-Term Debt (30,525) (1,294)
Proceeds from Issuance of Common Stock 1,565 1,948
Redemption of Common Stock (15,132) (2,052)
Dividends Paid (18,617) (17,930)
------- --------
Net Cash (Used in) Provided by
Financing Activities (62,709) 210,672
------- --------
------- --------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 53,377 (31,205)
Cash and Cash Equivalents, Beginning 9,792 67,556
------- --------
CASH AND CASH EQUIVALENTS, ENDING $63,169 $36,351
------- --------
------- --------
See note to financial statements.
</TABLE>
d) NOTE TO FINANCIAL STATEMENTS
1. SEGMENT REPORTING INFORMATION - (SEE NOTE 15 TO FINANCIAL
STATEMENTS AT JANUARY 3, 1999).
Due to the sale of the Communicolor operation in the first quarter
of 1999 and management restructuring occurring in the second
quarter of 1999, the Company now has only one reportable segment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS FROM OPERATIONS
Results of Operations
Net income for the third quarter ended October 3, 1999 was $14.9
million or $.53 per diluted share, compared to $17.2 million and
$.60 per diluted share for the third quarter 1998. On a
continuing operations basis, excluding the results of the
Communicolor Division divested April 1, 1999, the $.53 per diluted
share result for the current quarter compares to $.57 for the
comparable period of 1998. Through nine months, earnings per
diluted share on continuing operations rose 15.8% from $1.32 in
1998 to $1.53 this year.
Revenue from continuing operations for the third quarter was
$325.9 million, 2.4% above the $318.3 million reported for the
third quarter 1998. For the first three quarters, revenue from
continuing operations was $988.5 million, 4.3% ahead of last
year's results. Product results from continuing operations for
the Company are summarized below with a comparison to the prior
year.
$ Millions Third Quarter Nine Months Y-T-D
--------------------------- ---------------------
1999 1998 % Chg. 1999 1998 % Chg.
Business Forms
& Services $172.8 $176.7 -2.2% $523.2 $528.8 -1.1%
Stanfast 47.9 45.5 5.3% 144.6 137.7 5.0%
Labels 42.8 37.5 14.1% 128.2 107.5 19.3%
Equipment and
Supplies 31.3 30.6 2.3% 103.8 98.4 5.5%
Imaging Services 24.0 27.9 -14.0% 71.2 74.2 -4.0%
Commercial
Printing 6.6 -- 16.3 --
Interest Income
& Other 0.5 0.1 1.2 0.8
---- ----- ----- ----- ----- ----
Total Company $325.9 $318.3 2.4% $988.5 $947.4 4.3%
Sales of traditional business forms and related services were down
2.2% and 1.1% for the quarter and year-to-date periods,
respectively. This is generally in line with the overall industry
trend of decline or slow growth in traditional forms products and
faster growth in other print related products and services. Non-
traditional products and services, which now account for
approximately 47% of Standard Register revenue, include pressure
sensitive labels, (Stanfast) print on demand, document systems,
commercial printing, and (Imaging Services) print outsourcing and
fulfillment. Revenue from these non-traditional product
categories, taken as a whole, increased 8.1% and 11.2% for the
quarter and year-to-date periods, respectively. The
uncharacteristic decline in Imaging Services revenue primarily
reflects a shift this year in the proportion of custom produced
product that is stored in distribution centers prior to shipment
and invoicing to customers.
The reported gross margin from continuing operations decreased
from 38.8% of revenue in the third quarter 1998 to 38.1% in the
current quarter. As a result of rising paper prices, there was an
unfavorable LIFO inventory charge in the third quarter of $4.4
million pretax; by comparison, the prior year's third quarter
included a favorable adjustment of $2.0 million. The Company also
changed the classification of certain expenses associated with its
Customer Support Centers from cost of sales in 1998 to selling
expense in 1999. Adjusting for the non-operating LIFO adjustments
in each of the quarters and the expense classification change
results in a quarter-to-quarter gross margin improvement of eighty
basis points in relation to revenue. Management believes it has
realized sufficient overall increases in the selling prices of its
forms to recover the higher paper prices experienced thus far in
1999. This, coupled with cost reductions achieved late in 1998
and early in 1999, have produced the improvement in operating
gross margin identified above.
Management expects paper costs to continue to rise modestly during
2000, based on strong demand and relatively high mill operating
rates. Historically, the Company has been able to recover most,
if not all, of increases in paper costs and expects to continue to
do so over the foreseeable future.
Total selling, administrative, and R&D expenses were $2.8 million
lower than the quarterly run rate in the first half of this year,
primarily as a result of lower compensation costs. In comparison
to the third quarter of 1998, the total of these operating
expenses was 60 basis points higher in relation to revenue --
26.5% this year compared to 25.9% for 1998. Adjusting for the
expense reclassification described in an earlier paragraph draws
the increase in this quarter's expense ratio to within 20 basis
points of the prior year result. This increase is primarily
attributable to consulting fees related to various software and
cost reduction initiatives that are underway.
The valuation of the Communicolor sale was completed during the
quarter resulting in the Company's ability to deduct $5.5 million
of prior capital losses previously not deductible. This resulted
in a reduction of the tax provision of $2.3 million and reduced
the effective tax rate to 31.1% for the quarter, well below the
average 40.1% for the first half of the year. The effective tax
rate is expected to return to normal levels in the fourth quarter.
Segment Reporting
Following the April 1, 1999 sale of Communicolor, the Company
reorganized into one identifiable operating segment effective July
1, 1999. With the elimination of the divisional operating
structure, the Company is aligned along functional lines (e.g.,
sales, manufacturing, finance) designed to improve the
effectiveness of customer service throughout the organization.
The new structure brings an integrated set of the company's
products and services to our customers.
Year 2000
The Company's program to ensure that its products and critical
systems will be Year 2000 compliant was undertaken in 1997. With
regard to its critical internal information systems, the Company
has undertaken a rigorous three-phase process to identify
potential date-related problems in all applications, made the
necessary modifications, and tested for compliance. Management
believes that all critical internal systems are now Year 2000
compliant. With regard to Year 2000 problems in equipment
products sold to customers, the Company employed the same three-
phase approach and has brought its current product line offering
into Year 2000 compliance. The Company has elected not to
evaluate, modify, or test selected discontinued products. In
certain cases, owners of discontinued products may purchase new
equipment that is Year 2000 compliant; for certain other products,
the Company made available an upgrade to a Year 2000 compliant
version. The Company is using its best efforts to notify
equipment customers of their options. Equipment sales year-to-date
in 1999 represented approximately 4% of total Company revenue.
The Company has initiated inquiries to its major vendors in order
to judge the likelihood and probable impact of interruptions in
raw materials and critical supplies. Although we are reasonably
assured that our major vendors are Year 2000 compliant,
interruptions are possible. A worst case scenario would involve
temporary interruptions in products and services to the Company
that could translate to interruptions of our products and services
to our customer. As a result, the Company has developed and
distributed a Year 2000 Checklist and Contingency Plan to all
production facilities, warehouses, field offices, and headquarters
complex. Included in this plan are our implementation steps to
immediately resolve problems as they arise.
The Company has completed its work on the Year 2000 readiness at a
total cost since 1997 of $12.1 million. Given the focus and scope
of the Company's program, management believes its most likely Year
2000 problem will originate from a non-mission critical system and
will represent an inconvenience rather than a significant business
interruption.
Novation Contract
Standard Register has provided business forms, labels, and related
services to Novation and to its predecessor, VHA, over the past 21
years under a contract arrangement that identified Standard
Register as the endorsed supplier. Novation negotiates supplier-
pricing arrangements on behalf of its member hospitals, but
participating hospitals are not mandated to purchase from the
Company under the contract. After 21 years as the endorsed
supplier of business forms, Standard Register currently counts
about 50% of member hospitals as customers with product revenues
in excess of $100 million annually.
In September 1999, Novation, awarded a three-year, dual-source
document services outsourcing contract to two of the Company's
competitors, replacing the sole-source contract with Standard
Register. Although the Company expects to lose some revenue due
to the aggressive pricing levels of the dual-source contract,
management expects to leverage the Company's extensive healthcare
experience and long-standing relationships with individual
hospitals to retain a significant majority of the business.
New Software Initiative
In July, the board of directors approved a new software initiative
that will be critical to the Company's long-term growth and
profitability. The software, which will be installed in phases
over three years, will accommodate increasing order volumes,
reduce operating costs, add to existing electronic commerce
capabilities, and improve customer service.
Spending for the new initiative is expected to total $52 million
over three years, including $38 million of capital and $14 million
in expense. Annual savings are forecasted to be $23 million once
the new software is fully operational. There was minimal expenses
incurred in the third quarter, but fourth quarter 1999 and total
year 2000 expenditures are estimated to reduce net income per
share by $.06 and $.28, respectively.
Liquidity and Capital Resources
The balance of Cash, Cash Equivalents, and Short-term Investments
increased $15 million during the quarter to $63 million. Debt
remained at $204 million. Netting the $63 million of cash against
total debt of $204 million produces a "net debt" to "total net
capital" ratio of 20.3%.
On April 13, 1999, the Company announced plans to repurchase of up
to one million shares of its common stock. The timing and actual
number of shares purchased will depend upon overall market
conditions. As of this writing, the Company has purchased a total
of 672 thousand shares in 1999.
Capital expenditures were $13 million for the quarter. The
current outlook for the year calls for capital spending in the $75
million to $80 million range, excluding the $10 million first
quarter acquisition of the Company's Boothwyn facility and
including an estimated $11 million for the new software
initiative.
The Company believes that its financial condition continues to be
very strong and that the combination of internally generated
funds, existing cash reserves, and $100 million of available
credit under the revolving credit agreement will be sufficient to
finance its operations over the next year.
Forward-Looking Statements
This report includes forward-looking statements covered by the
safe harbor provisions of The Private Securities Litigation Reform
Act of 1995. These statements involve important assumptions,
risks, uncertainties and other factors that could cause the
Company's actual results for fiscal year 1999 and beyond to differ
materially from those expressed in such forward-looking
statements. Factors that could cause materially different results
include product demand and market acceptance, the frequency and
magnitude of raw material price changes, the effect of economic
conditions, competitive activities, and other risks described in
the Company's filings with The Securities and Exchange Commission.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in market risk since the year
ended January 3, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material legal proceedings within the reporting
period that the Company has been involved with beyond those
conducted in a normal course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
Exhibits pursuant to Item 601 of Regulation S-K
a) Exhibit 27 Financial Data Schedule (filed only electronically
with the SEC)
b) Reports on Form 8K
Form 8K was not filed within the reporting period.
<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.
November 16, 1999
/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 SECTION CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STANDARD
REGISTER COMPANY FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED OCTOBER 3, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000093456
<NAME> STANDARD REGISTER COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-2-2000
<PERIOD-START> JAN-4-1999
<PERIOD-END> OCT-3-1999
<CASH> 63,169
<SECURITIES> 480
<RECEIVABLES> 271,416
<ALLOWANCES> 13,184
<INVENTORY> 135,724
<CURRENT-ASSETS> 488,316
<PP&E> 506,661
<DEPRECIATION> 172,036
<TOTAL-ASSETS> 971,931
<CURRENT-LIABILITIES> 122,132
<BONDS> 203,520
0
0
<COMMON> 29,179
<OTHER-SE> 523,642
<TOTAL-LIABILITY-AND-EQUITY> 971,931
<SALES> 987,309
<TOTAL-REVENUES> 988,523
<CGS> 606,029
<TOTAL-COSTS> 909,208
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,455
<INTEREST-EXPENSE> 10,419
<INCOME-PRETAX> 68,896
<INCOME-TAX> 25,474
<INCOME-CONTINUING> 43,422
<DISCONTINUED> 14,366
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,788
<EPS-BASIC> 2.05
<EPS-DILUTED> 2.03
</TABLE>
