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 April 4, 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 (I.R.S. Employer
of 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
issuer's classes of common stock, as of the latest practicable
date.
CLASS OUTSTANDING AS OF May 7, 1999
- ----- -----------------------------
Common Stock - $1.00 Par Value 23,564,171
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 the 13 Weeks Ended April 4, 1999
and March 29, 1998 . . . . . . . . . . . . 4
b) Balance Sheet
as of April 4, 1999 and January 3, 1999 . . 5
c) Statement of Cash Flows
for the 13 Weeks Ended April 4, 1999
and March 29, 1998 . . . . . . . . . . . . 6
d) Note to Financial Statements. . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 8-11
Item 3. Quantitative and Qualitative Disclosure
About Market Risk . . . . . . . . . . . . 11
Part II - Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . 12
Item 2. Changes in Securities and Use of Proceeds . 12
Item 3. Defaults upon Senior Securities . . . . . . 12
Item 4. Submission of Matters to a Vote of
Security Holders. . . . . . . . . . . . . . 12
Item 5. Other Information . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . 12
Signature . . . . . . . . . . . . . . . . . . . . . . 13
<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.
<PAGE>
a) STATEMENT OF INCOME (In Thousands except Data Per Share)
First Quarter
13 Weeks Ended
April 4, March 29,
1999 1998
-------- ---------
TOTAL REVENUE $326,986 $320,089
-------- --------
COSTS AND EXPENSES
Cost of Products Sold 198,891 204,043
Engineering and Research 1,960 2,696
Selling and Administrative 87,309 82,726
Depreciation and Amortization 12,212 11,267
Interest 3,484 3,430
-------- --------
Total Costs and Expenses 303,856 304,162
-------- --------
INCOME BEFORE INCOME TAXES 23,130 15,927
Income Taxes 9,426 6,303
-------- --------
Income From Continuing Operations 13,704 9,624
Discontinued Operations:
Current Year (Loss)/Income, Net of Tax (509) 67
Gain on Disposal, Net of Tax 13,759 -
-------- --------
NET INCOME $ 26,954 $ 9,691
-------- --------
-------- --------
Average Number of Shares Outstanding 28,392 28,423
Average Number of Shares Outstanding -
Diluted 28,567 28,626
EARNINGS PER SHARE DATA - BASIC:
Income From Continuing Operations $ 0.48 $ 0.34
Discontinued Operations,
Current Year (Loss) $ (0.02) $ 0.00
Gain on Disposal $ 0.49 $ 0.00
Net Income $ 0.95 $ 0.34
EARNINGS PER SHARE DATA - DILUTED:
Income From Continuing Operations $ 0.48 $ 0.34
Discontinued Operations,
Current Year (Loss) $ (0.02) $ 0.00
Gain on Disposal $ 0.48 $ 0.00
Net Income $ 0.94 $ 0.34
Dividends Paid Per Share $ 0.22 $ 0.21
See note to financial statements.
b) BALANCE SHEET (Dollars in Thousands)
Apr 4, Jan 3,
ASSETS 1999 1999
------ -------
CURRENT ASSETS
Cash and Cash Equivalents $ 86,968 $ 9,792
Short Term Investments 6,530 6,530
Accounts Receivable, less
Allowance for Losses 261,339 288,103
Inventories
Finished Products 121,768 104,982
Jobs in Process 4,248 18,075
Materials and Supplies 12,385 15,319
Deferred Income Taxes 19,065 19,065
Prepaid Expense 15,070 11,929
------- ---------
Total Current Assets 527,373 473,795
PLANT AND EQUIPMENT
Buildings and Improvements 89,949 93,552
Machinery and Equipment 266,471 306,658
Office Equipment 62,490 98,209
------- ---------
Total 418,910 498,419
Less Accumulated Depreciation 148,132 182,218
------- ---------
Depreciated Cost 270,778 316,201
Construction in Process 46,092 44,732
Land 10,208 7,228
------- ---------
Total Plant and Equipment 327,078 368,161
OTHER ASSETS
Goodwill 55,148 57,825
Prepaid Pension Expense 73,051 73,538
Other 15,134 11,758
------- ---------
Total Other Assets 143,333 143,121
------- ---------
TOTAL ASSETS $997,784 $985,077
------- ---------
------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt 555 525
Accounts Payable 28,510 29,967
Dividends Payable - 6,251
Accrued Compensation 32,805 44,406
Accrued Other Expense 4,176 12,158
Accrued Taxes, except Income 4,687 9,329
Income Taxes Payable 27,176 1,335
Customer Deposits 223 3,138
Deferred Service Contract Income 9,908 8,404
Accrued Restructuring 19,285 14,843
------- ---------
Total Current Liabilities 127,325 130,356
------- ---------
LONG-TERM LIABILITIES
Long-Term Debt 233,520 234,075
Deferred Compensation 5,914 3,795
Retiree Healthcare 55,057 55,057
Deferred Income Taxes 31,416 40,829
------- ---------
Total Long-Term Liabilities 325,907 333,756
SHAREHOLDERS' EQUITY
Common Stock, $1.00 Par Value
24,402,034 Shares Issued in 1999 24,402
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 34,405 33,957
Accumulated Other Comprehensive Income (1,161) (1,161)
Retained Earnings 506,631 479,679
Treasury Stock
789,894 Shares at Cost (22,470)
701,152 Shares at Cost (19,614)
Common Stock held in Grantor Trust
62,289 Shares at Cost (1,980)
26,284 Shares at Cost - (1,012)
------- ---------
Total Shareholders' Equity 544,552 520,965
------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $997,784 $985,077
------- ---------
------- ---------
See note to financial statements.
<PAGE>
c) STATEMENT OF CASH FLOWS (Dollars in Thousands)
First Quarter
13 Weeks Ended
April 4, March 29,
1999 1998
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $26,954 $ 9,691
------- -------
Add Items Not Affecting Cash:
Depreciation and Amortization 14,819 13,521
(Gain)/Loss on Sale of Plant Assets (23,109) 63
Net Change to Investments 0 138
Net Change to Retiree Healthcare 0 523
Net Change to Deferred Income Taxes (9,413) 0
Net Change to Deferred Compensation 2,119 2,525
Increase/(Decrease) in Cash Arising from
Changes in Assets and Liabilities:
Accounts Receivable 10,281 12,181
Deferred Accounts Receivable 631 26,036
Inventories (3,505) (35,010)
Other Assets (8,186) (1,957)
Prepaid Pension 487 (1,556)
Accounts Payable and Accrued Expenses (20,881) (17,790)
Accrued Restructuring Expenses 4,442 (2,931)
Income Taxes Payable 25,841 2,834
Customer Deposits (2,915) 5,222
Deferred Service Income 1,505 1,840
------- -------
Net Adjustments (7,884) 5,639
------- -------
Net Cash Provided by Operating
Activities 19,070 15,330
------- -------
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Facilities 98,021 50
Additions to Plant and Equipment (19,298) (14,664)
Acquisition (10,414) (245,000)
Maturity of Short-Term Investments - 15,295
Purchase of Short-Term Investments - (15,000)
Investment in F3/Keyfile Corporation (58) (1,000)
------- -------
Net Cash Provided by (Used in)
Investing Activities 68,251 (260,319)
------- -------
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-Term Debt - 230,000
Payments of Long-Term Debt (525) (1,254)
Proceeds from Issuance of Common Stock 459 657
Redemption of Common Stock (3,825) (557)
Dividends Paid (6,254) (5,970)
------- -------
Net Cash (Used in) Provided by
Financing Activities (10,145) 222,876
------- -------
------- -------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 77,176 (22,113)
Cash and Cash Equivalents, Beginning 9,792 67,556
------- -------
CASH AND CASH EQUIVALENTS, ENDING $86,968 $45,443
------- -------
------- -------
See note to financial statements.
<PAGE>
d) NOTE TO FINANCIAL STATEMENTS
1. SEGMENT REPORTING INFORMATION - (SEE NOTE 15 TO FINANCIAL
STATEMENTS AT JANUARY 3, 1999).
Financial information about the Company's reportable
operating segments is as follows:
First Quarter First Quarter
(Dollars in Thousands) 1999 1998
---- ----
REVENUE:
DM&SD $ 252,066 $ 253,363
Impressions 74,770 66,452
Corporate 150 274
Total Revenue $ 326,986 $ 320,089
INCOME BEFORE INCOME TAXES:
DM&SD $ 24,963 $ 17,738
Impressions 2,828 2,089
Corporate (4,661) (3,900)
Total Income Before Income Taxes $ 23,130 $ 15,927
IDENTIFIABLE ASSETS AT END OF PERIOD:
DM&SD $ 594,522 $ 621,956
Impressions 108,789 92,465
Corporate 294,473 176,617
Total Identifiable Assets $ 997,784 $ 891,038
Income Before Income Taxes for DM&SD and Impressions shown above
incorporates allocations of all corporate expenses except
interest, LIFO inventory adjustments and goodwill amortization.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS FROM OPERATIONS
Significant Events
On January 26, 1999, the Company announced the formation of a new
operating group within the Impressions Division - the Commercial
Print Group. This group will provide business customers high-
quality commercial printing pieces, adding to the Company's
already extensive portfolio of printed products and services. The
Group's manufacturing facilities are located in Secaucus, New
Jersey and Boothwyn, Pennsylvania - the Boothwyn plant being
purchased March 1.
On April 1, the Company sold the Communicolor promotional direct
mail operation to R.R. Donnelley and Sons Company for $98 million,
subject to post-closing adjustments, which are expected to be
minor. The Company's annual revenue from this specialized direct
mail segment was approximately $100 million, or about 7% of total
revenue. The Company believes that shareholders will be better
served by redirecting its investment to the Company's core
document products and services.
During the quarter, the Company also opened Stanfast print centers
in Anchorage, Alaska and Milwaukee, Wisconsin bringing the total
number of Stanfast facilities to 36. This continues the
Company's program to put print centers in major metropolitan areas
throughout the United States.
Results of Operations
Net income for the first quarter ended April 4, 1999 was $27.0
million or $.95 per basic share, compared to $9.7 million and $.34
per basic share for the first quarter 1998. On a diluted basis,
net income per share was $.94 in the current quarter versus $.34
in the prior year. Net income for the first quarter 1999 included
a gain of $13.8 million, or $.49 per basic share, on the sale of
Communicolor(R). Excluding both this gain and the first quarter
operating loss equivalent to $.02 per basic share on the
discontinued Communicolor operation, the Company reported net
income from continuing operations of $13.7 million, or $.48 per
basic share, up 42% over the comparable period of 1998.
Revenue from continuing operations for the first quarter was
$327.0 million compared to $320.1 million for the first quarter
1998. A discussion of the underlying product results appears in
the segment reporting section of this report.
Gross margin from continuing operations improved from 36.3% of
revenue in first quarter 1998 to 39.2% in first quarter 1999.
This increase is attributable primarily to cost reductions
achieved in the latter half of 1998 in conjunction with the
integration of Uarco, Inc., acquired December 31, 1997. In
addition, paper costs in the most recent quarter were on average
slightly below that for the comparable quarter of 1998. The
prices of white bond papers, which account for about 60% of paper
purchases, rose approximately 10% in March of this year and are
scheduled to go up an additional 7% in July.
<PAGE>
The Company has historically recovered paper cost increases in the
form of higher product prices and expects to do so for these
latest rounds of increases. The Company also reclassified the
expenses associated with its Customer Support Centers for the
first quarter 1999 from cost of sales to operating expense, which
had the effect of improving the reported gross margin by .7%
compared to the first quarter 1998, which was not restated. There
were no LIFO inventory adjustments in the first quarter of either
year.
Selling, Administrative, and R&D expenses were 27.3% of revenue
in the first quarter 1999 compared to 26.7% for 1998. Spending for
year 2000 systems compliance was $1.2 million higher than in the
first quarter 1998. First quarter 1999 spending was also higher by
$.8 million for Uarco acquisition integration activities and $1.1
million for computer system costs related in part to the transfer
of Uarco processing to Standard Register systems. Excluding these
items and the expense reclassification described in the preceding
paragraph, 1999's operating expenses would have been 25.7%
compared to the 26.7% reported for 1998.
Segment Reporting
The Company aligns its products and services into two operating
divisions. The Document Management and Systems (DM&S) Division
provides document management solutions 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(R) Division provides print on demand, document and
plastic card fulfillment services, and commercial printing.
Results from continuing operations for the Company's two divisions
are summarized below with a comparison to the first quarter of the
prior year. The divisional operating profits incorporate
allocations of all corporate expenses except interest, LIFO
inventory adjustments, goodwill amortization, and taxes.
DM&S Division Impressions Division
---------------- -----------------------
1st Qtr 1st Qtr 1st Qtr 1st Qtr
1999 1998 %Chg. 1999 1998 %Chg.
------- ------- ----- ------- ------- -----
Revenue $252.1 $253.4 -0.5% $74.8 $66.5 12.5%
Operating Profit $25.0 $17.7 40.7% $2.8 $2.1 35.4%
% Revenue 9.9% 7.0% 3.8% 3.1%
<PAGE>
DM&S Division revenue was $252.1 million, down 0.5% from the 1998
result due primarily to an approximate 5% drop in traditional
business forms and related services. Conversely, revenue from
pressure sensitive label products increased 14.3% and equipment,
supplies, and maintenance revenues were up 9.6%. Despite the
slight drop in overall division revenue, the gross margin was up
approximately $6 million, or 2.6 percentage points in relation to
revenue, primarily as a result of the plant consolidations and
other cost saving actions taken after the first quarter of 1998.
As indicated earlier, lower paper costs were also a minor factor
in this improvement. The 9.6% revenue increase for equipment,
supplies, and maintenance was accompanied by a 27.3% increase in
dollar gross margin, reflecting improved product mix and cost
reductions achieved in the maintenance component. The improved
gross margin across virtually all product segments was the primary
factor contributing to the 40.7% increase in operating profit for
this division.
For the Impressions Division, first quarter revenue from
continuing operations was $74.8 million, up $8.3 million, or
12.5%, vs. the first quarter 1998 results. The March 1 purchase
of DuPont's printing and publishing operation in Boothwyn,
Pennsylvania and the related formation of the Commercial Print
Group during the first quarter contributed approximately $1.0
million to the overall revenue increase. The Imaging Services and
Stanfast Groups reported revenue increases of 4.4% and 8.7%,
respectively. As was the case for the DM&S Division, 1998 cost
reductions associated with the integration of Uarco, Inc. was the
primary factor responsible for the significant improvements in the
gross margin and operating profit for this division.
Year 2000
Expenses incurred on year 2000 compliance projects totaled $1.8
million for the first quarter, which was in line with the
Company's plan to complete its remediation and testing work by
September of this year at a total 1999 cost of $6.0 million. The
Company is on pace to complete the work as outlined in its January
3, 1999 report on Form 10K.
Liquidity and Capital Resources
The balance of Cash, Cash Equivalents, and Short-term Investments
increased $77 million from the year-end 1998 position to $93
million at the end of the first quarter. Major factors
contributing to this change include the sale of Communicolor for
$98 million, the purchase of the Boothwyn, Pennsylvania operations
for $10 million, and the repurchase of Company stock for $4
million. The additional $7 million reduction in cash reflects
normal seasonal changes in working capital. Netting the $93
million of cash against total debt of $235 million produces a "net
debt" to "total capital" ratio of 20.6%.
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. Since making the announcement, the Company has
purchased a total of 190 thousand shares; total shares purchased
thus far in 1999 are 325 thousand.
<PAGE>
On April 27, 1999, the Company repaid approximately $30 million of
the debt outstanding under its revolving credit agreement. The
remaining $200 million borrowed under the $300 million revolving
credit agreement has been effectively converted to an all-in fixed
rate of 6.09% as a result of the interest rate swap entered into
in 1998.
Capital expenditures were $30 million for the quarter including
approximately $10 million used for the purchase of the Boothwyn
operation. The current outlook for the year calls for capital
spending in the $65 million to $70 million range.
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.
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.
<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
a) Exhibits pursuant to Item 601 of Regulation S-K
Exhibit 27 Financial Data Schedule (filed only
electronically with the SEC)
b) Reports on Form 8K
Form 8K was filed on April 15, 1999. This filing related to
the disposition of assets of the Communicolor Division. The
financial statements filed therewith reflect the proforma
financial information.
<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.
May 17, 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's financial statements for the three months ended April 4,
1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000093456
<NAME> THE STANDARD REGISTER COMPANY
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