<PAGE> 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
For the fiscal year ended January 3, 1999
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 16, 1999 was approximately $343,524,000, based on a closing sales price
of $29.50 per share on March 16, 1999.
At March 16, 1999, the number of shares outstanding of the issuer's classes of
common stock are as follows:
Common stock, $1.00 par value 23,753,551 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 21, 1999.
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<PAGE> 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 is 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.
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(R) Division provides print on demand, promotional
direct mail, document and plastic card fulfillment services, and commercial
printing.
DOCUMENT MANAGEMENT AND SYSTEMS DIVISION
BUSINESS FORMS - Standard Register is known for its high-quality business
forms and document management solutions. Traditional forms include custom
continuous, secure documents, snap-apart Zipsets(R), as well as laser cut-sheet
products. The Company also works with customers to analyze their workflow to
improve the design of their forms or to provide electronic documents in order to
improve overall business performance.
LABELS - 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. With the acquisition of Uarco Incorporated, the Company
doubled its label revenues and believes that it is now the largest domestic
producer of custom pressure sensitive labels in the United States.
SMARTWORKS - The Company provides customers with a single desktop solution
for document automation and management. SMARTworks(TM) organizes all paper
documents, manages their ordering, distribution, and usage, and identifies the
best candidates for migration to electronic format. The system is integrated
with Standard Register's warehousing and distribution/requisition/order entry
systems to provide flexible, up-to-date information, with distributed access and
centralized control. SMARTworks on-line, real-time access provides customers
value through single-source document management, printing, fulfillment,
requisition, and warehousing solutions.
DISTRIBUTION SERVICES - Standard Register operates a nationwide network of
over 80 distribution centers to provide our customers with the cost advantages
of high-volume printing, coupled with just-in-time delivery service to dock or
desktop.
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INTELLIGENT PRINTING SYSTEMS AND SUPPLIES - The Company's Document System
Group enhances the quality, efficiency, and security of printed documents by
providing turnkey printing solutions. Document management equipment, application
software, service, and supplies come together with traditional business forms
and labels to provide customers with a single source supplier for all their
printing and processing needs.
IMPRESSIONS DIVISION
PRINT ON DEMAND - Stanfast(R) was established in 1983 based on the concept
of providing short-run documents to the Company's forms management accounts. The
trend towards outsourcing is driving rapid growth in the print on demand market
and Stanfast's nationwide network of distributive print centers allows the
Company to provide value and service to our customers. The Company now has 35
Stanfast print centers across the nation specializing in just-in-time production
of business documents using traditional offset printing and newer digital print
and image technology.
PROMOTIONAL DIRECT MAIL - Communicolor(R) is a leading designer and printer
of innovative direct-mail campaigns providing personalization services for many
of the nation's largest direct-mail marketers. A pioneer in the direct-mail
industry, they offer a full range of state-of-the-art technology to enhance the
targeted direct mail message.
On February 11, 1999, the Company announced that it has reached an
agreement to sell the Communicolor operation to R.R. Donnelley and Sons Company.
The Company believes shareholders will be better served by redirecting its
investment to the Company's core products and services. The sale is expected to
close by March 31, 1999.
DOCUMENT AND PLASTIC CARD FULFILLMENT SERVICES - The Company's Imaging
Services Group(SM) provides customers with complete fulfillment services,
including programming, design, printing, imaging, and distribution of these
types of documents. In addition, the Imaging Services Group takes advantage of
the trend to outsource plastic card services by offering packages for ATMs,
prepaid phone cards, membership cards, smart cards, and numerous other card
programs.
COMMERCIAL PRINTING - On January 26, 1999, the Company announced the
formation of a Commercial Print Group which will include the Company's Secaucus,
New Jersey facility and the newly purchased DuPont printing and publishing
operation in Boothwyn, Pennsylvania. Recognizing the trend of business customers
to use high-quality, commercial printing pieces to augment their traditional
products, Standard Register is poised to be a single-source supplier and take
advantage of this expanding marketplace.
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 62 geographically
disbursed locations in the U.S. 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 1998 of $9.4
million compared to $9.1 and $7.8 million for 1997 and 1996, respectively. 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 98 professional employees.
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<PAGE> 4
Expenditures for property, plant and equipment totaled $65.7 million in
1998, compared to $61.3 million and $57.8 million in 1997 and 1996,
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 3.6 to 1 at January 3, 1999 as
compared to 3.5 to 1 at December 28, 1997 and 4.0 to 1 at December 29,
1996. Total debt, including long-term and current maturities, was
31.0% of total capital at year-end 1998, compared to 0.9% and 1.0% for
years-end 1997 and 1996, respectively.
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, 1999
was $81.4 million compared to $85.7 million and $53.8 million at
February 28, 1998 and February 28, 1997, 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, 1999, the Company had 8,682 employees compared to
9,743 and 6,488 at February 28, 1998 and February 28, 1997,
respectively.
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 .2% of total revenue.
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ITEM 2 - PROPERTIES
The Document Management and Systems Division operates major production
facilities located in the following cities:
- Cincinnati, Ohio
- Dayton, Ohio
- Fayetteville, Arkansas
- Kirksville, Missouri
- Middlebury, Vermont
- Murfreesboro, Tennessee
- Porterville, California
- Radcliff, Kentucky
- Rocky Mount, Virginia
- Salisbury, Maryland
- Shelbyville, Indiana
- Spring Grove, Illinois
- Tampa, Florida
- Terre Haute, Indiana
- Toccoa, Georgia
- Watseka, Illinois
- York, Pennsylvania
With the exceptions of Tampa, Florida and Toccoa, Georgia, these facilities
are owned by the Company.
The Impressions Division operates major production facilities located in
the following cities:
- Boothwyn, Pennsylvania
- Charlotte, North Carolina
- Eudora, Kansas
- Newark, Ohio
- Phoenix, Arizona
- Rochester, New York
- Sacramento, California
- Tolland, Connecticut
Of these facilities, Phoenix, Arizona, Rochester, New York, Sacramento,
California, and Tolland, Connecticut are leased. In addition, the Impressions
Division operates 35 smaller Stanfast Print Centers. In most cases these
facilities are located in major metropolitan locations in the U.S. and are
leased. The Company currently owns Eudora, Kansas and Newark, Ohio, both of
which are slated for sale to R.R. Donnelley and Sons.
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.
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<PAGE> 6
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
<TABLE>
<CAPTION>
Officer
Name Age Office and Experience Since
---- --- --------------------- -----
<S> <C> <C> <C>
Craig J. Brown 49 Senior Vice President, Administration, 1987
Treasurer and 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 42 Corporate Vice President, Sales. Mr. 1997
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 60 Corporate Vice President, Corporate 1995
Marketing and Communications. 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.
</TABLE>
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<PAGE> 7
<TABLE>
<CAPTION>
Officer
Name Age Office and Experience Since
---- --- --------------------- -----
<S> <C> <C> <C>
James H. DeYoung 60 Corporate Vice President, International 1995
Operations. Mr. DeYoung has 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 1996
Manager, Document Management and Systems
Division. Mr. Dorsman has served in this
position since January 1998. He served
as Senior Vice President and General
Manager, Equipment Division from January
1996 to January 1998. 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 71 Chairman, Board of Directors. Mr. 1984
Granzow has served as 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.
Kathryn A. Lamme 52 Corporate Vice President, Secretary and 1998
Deputy General Counsel. Ms. Lamme has
served in this position since joining
Standard Register in March 1998.
Previously she was a partner with the
law firm of Turner, Granzow &
Hollenkamp.
J. Doug Patterson 44 Corporate Vice President, Chief 1998
Information Officer. Prior to joining
Standard Register in January 1998, Mr.
Patterson served as Vice President,
Information Systems for Uarco
Incorporated since November 1993.
Peter S. Redding 60 President and Chief Executive Officer. 1981
Mr. Redding has 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.
John E. Scarpelli 55 Corporate Vice President, Human 1995
Resources. Mr. Scarpelli was elected to
this position in March 1995. He
previously served as Assistant Vice
President, Human Resources from January
1993 to March 1995.
Joseph V. Schwan 62 Executive Vice President and Chief 1991
Operating Officer. 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.
</TABLE>
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<PAGE> 8
<TABLE>
<CAPTION>
Officer
Name Age Office and Experience Since
---- --- --------------------- -----
<S> <C> <C> <C>
Allan F. Scott 51 Corporate Vice President, Operational 1998
Excellence. Prior to joining Standard
Register in January 1998, Mr. Scott
served as Vice President, Operations for
Uarco Incorporated since November 1996.
Previous to his Uarco experience, Mr.
Scott had been with Wilson Sporting
Goods as Vice President of Golf
Operations from 1995 to 1996 and plant
manager from 1993 to 1995.
Harry A. Seifert, Jr. 61 Corporate Vice President and General 1987
Manager, Rotary Group. Mr. Seifert has
served in this position since March
1998. Previously he had been Vice
President, Manufacturing - Document
Management Division from January 1997 to
March 1998 and Vice President, Forms
Manufacturing - Document Management
Division from August 1992 to January
1997.
Michael Spaul 51 Corporate Vice President. Mr. Spaul has 1991
served as General Manager of
Communicolor since January 1990.
Timothy J. Webb 49 Senior Vice President and General 1998
Manager, Impressions Division. Prior to
joining Standard Register in January
1998, Mr. Webb served Uarco Incorporated
for 26 years, most recently as President
and CEO since August 1994. He also
served as Executive Vice President from
April 1994 to August 1994 and Senior
Vice President prior to April 1994.
</TABLE>
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.
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<PAGE> 9
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. 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.
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------------------------------
Cash
Quarter Dividend High Low Last
------- -------- ---- --- ----
<S> <C> <C> <C> <C>
1st $0.21 $36.31 $31.00 $33.87
2nd $0.21 $40.00 $33.87 $35.69
3rd $0.21 $36.75 $28.31 $28.69
4th $0.21 $30.94 $24.50 $30.94
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------------------------------
Cash
Quarter Dividend High Low Last
------- -------- ---- --- ----
<S> <C> <C> <C> <C>
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
</TABLE>
(b) The number of shareholders of record of the Company's common stock as
of March 16, 1999 was 3,264, 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.
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<PAGE> 10
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Selected Income Statement Data 1998 1997 1996 1995 1994
- ------------------------------ ---- ---- ---- ---- ----
Thousands except for per share data
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $1,396,869 $965,674 $943,979 $903,240 $767,415
Net income 59,583 66,894 63,157 47,759 43,876
Earnings per share:
Basic 2.10 2.35 2.20 1.67 1.53
Diluted 2.08 2.33 2.19 1.67 1.53
Selected Balance Sheet Data
- ---------------------------
Total assets $985,077 $647,018 $588,113 $555,503 $525,659
Long-term debt 234,075 4,600 4,600 4,600 11,071
Other
- -----
Cash dividends paid
per share .84 .80 .76 .72 .68
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations: 1998 Compared to 1997
- ---------------------------------------------
Net Income for 1998 was $59.6 million or $2.10 per basic share, 11% below
the $66.9 million or $2.35 per basic share result for 1997. Revenue totaled
$1.397 billion, 45% above the $966 million reported for 1997.
The acquisition of Uarco, Inc., which became effective December 31, 1997 -
during the first week of the Company's 1998 fiscal year, figured prominently in
the results of operations for 1998. In the year prior to the acquisition, Uarco
incurred a $39 million pretax operating loss on revenue of $474 million, closing
its fiscal year 1997 with approximately $423 million in financial debt. Standard
Register acquired the stock of Uarco, Inc. for $245 million in cash and assumed
no financial debt. The table below summarizes the valuation after final purchase
accounting adjustments:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Net Operating Assets Acquired $159.6
Prepaid Pension Asset 67.0
Restructuring Liability ( 41.7)
Goodwill 60.1
------
Purchase Price $245.0
======
</TABLE>
The Company's business plan for 1998 incorporated the following
objectives:
- - Achieve a rapid consolidation of the two companies in order to
capitalize on the respective companies' personnel and market strengths
and to present a single identity to the customer.
- - Target profit improvements, including both improved pricing in
unprofitable accounts and structural cost reductions.
- - Achieve successive quarterly increases in earnings during 1998, exiting
the year with a strong financial position.
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<PAGE> 11
With regard to consolidations and profit improvements, the Company
completed the following actions during 1998:
- - The marketing and manufacturing operations of Standard Register and
Uarco were immediately reorganized along product lines into two
divisions.
1. Document Management & Systems Division - Provides business
forms and forms management, distribution services, pressure
sensitive labels, and document management systems.
2. Impressions Division - Provides promotional direct mail,
imaging services, and on-demand printing.
- - The sales forces for the two companies were consolidated within the
first month, including the appointment of sales managers and the
assignment of accounts. The consolidation resulted in the vacating of
approximately 120 sales offices, reducing lease costs and improving
effectiveness.
- - Former Uarco forms plants at Roseburg, Oregon; Deep River, Connecticut,
and Fulton, Kentucky were closed, shifting the majority of their
productive capacity to other production facilities. Seven smaller print
centers were also shut down, again relocating most manufacturing
capacity into nearby Stanfast centers.
- - The former Uarco headquarters in Barrington, Illinois was closed in the
third quarter after most administrative support was transferred to the
Company's Dayton, Ohio headquarters.
- - Other cost saving actions included the buyout of selected operating
leases on long-term assets, bringing subcontracted work in-house,
warehouse consolidations, and other purchasing savings.
The cost saving actions outlined above were implemented as the year
progressed with most taking effect in the second half of the year. Management
believes that it achieved its cost saving objectives. Conversely, management
believes it fell short of its objective to improve price levels at acquired
unprofitable accounts. This is attributed in part to weak paper prices, which
undermined efforts to raise forms prices.
The following table summarizes the results of operations for total 1997 and
by quarter for 1998. As the table illustrates, the Company achieved its
objective of improving earnings in each successive quarter of 1998. Comments on
individual line items follow the table.
<TABLE>
<CAPTION>
1998
(Dollars in thousands, except 1997 --------------------------------------------------------------
per share amounts) Total 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
----- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue $965.7 $344.1 $333.7 $340.6 $378.5 $1,396.9
Gross Margin 389.4 121.6 123.5 130.2 147.3 522.6
% Revenue 40.3% 35.3% 37.0% 38.2% 38.9% 37.4%
SG&A Expenses 241.5 88.6 85.7 84.9 95.2 354.4
EBITDA 147.9 33.0 37.8 45.3 52.1 168.2
% Revenue 15.3% 9.6% 11.3% 13.3% 13.8% 12.0%
Depreciation and Amortization 36.6 13.5 13.5 12.8 14.3 54.1
Interest Expense 0.3 3.4 3.6 3.4 3.6 14.0
Pretax Profit 110.9 16.0 20.7 29.2 34.2 100.0
% Revenue 11.5% 4.7% 6.2% 8.6% 9.0% 7.2%
Net Profit $66.9 $9.7 $12.4 $17.2 $20.3 $59.6
% Revenue 6.9% 2.8% 3.7% 5.1% 5.4% 4.3%
Earnings per basic share $2.35 $0.34 $0.44 $0.61 $0.71 $2.10
</TABLE>
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<PAGE> 12
Revenue increased 45% for the year and was impacted by two significant
factors: the acquisition of Uarco and the unfavorable effect of a change in
Uarco's revenue recognition policy. The Company originally expected to lose
approximately $60 million in 1998 Uarco revenue as a result of sales turnover
and other acquisition-related factors. Although it is not possible to determine
the extent of acquisition related business loss, management believes its
original estimate is reasonable. Overall, on a pro-forma basis, the favorable
effects of new business and pricing gains achieved during 1998 exceeded lost
business by $20 million, as indicated below.
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
SRC 1997 Revenue $ 966
Uarco 1997 Revenue 474
-------
Total 1,440
Effect of Uarco Policy Change (63)
-------
Pro-forma Revenue 1,377
SRC 1998 Revenue 1,397
-------
Net Increase $ 20
=======
</TABLE>
Revenue for 1998 was adversely affected by a change in Uarco's revenue
recognition policy to conform to that of Standard Register. Prior to the
acquisition, Uarco had recognized revenue when custom forms were shipped from
its plants to its warehouses for storage and subsequent shipment and invoicing
to customers, which normally occurs over a 6 to 12 month period. Standard
Register's more conservative policy is to recognize revenue when product is
shipped and invoiced to the customer. This change had the effect of reducing
reported revenue in 1998 by $63 million.
The gross margin improved in each successive quarter of 1998, reflecting
declining paper prices, cost reductions from consolidations realized as the year
progressed, and increased seasonal volume in the fourth quarter. Overall for the
year, however, the gross margin was 2.9 percentage points lower in 1998,
primarily as a result of the addition of the generally less profitable Uarco
business. At this writing, paper companies have announced an approximate 10%
increase in white bond paper prices to be effective March 1, 1999, which should
provide improved footing for higher prices at less profitable accounts.
SG&A expenses were 25.4% of revenue in 1998, compared to 25.0% for 1997.
Excluding expenses related to acquisition integration and Year 2000 activities
of $9.1 million and $6.5 million, respectively, 1998's expense ratio would have
been 24.3%. The increase of $17.5 million in annual depreciation and
amortization reflects the addition of $98 million in Uarco capital assets, $65.7
million in 1998 capital spending, and $60.1 million in goodwill amortized over
15 years. The $14.0 million in interest expense results primarily from $230
million in debt borrowed under a bank revolving credit agreement to finance the
acquisition. The Company entered into a five-year interest rate swap agreement
that effectively fixes the interest rate on $200 million of the debt at an
all-inclusive annual cost of 6.09%. The balance of the debt floats at the London
Interbank Offered Rate, plus a spread.
The table below summarizes the revenue and pretax profit for the two
operating divisions of the Company. Operating profits shown below are expressed
in millions and incorporate allocations of all corporate expenses except
interest, LIFO inventory adjustments, goodwill amortization and taxes.
<TABLE>
<CAPTION>
Revenue Operating Profit
-------------------------------- --------------------------------
(Dollars in millions) 1998 1997 %Chg. 1998 1997 %Chg.
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
DM&S Division $1,010.3 $667.6 51.3% $98.0 $87.0 12.6%
% Revenue 9.7% 13.0%
Impressions(R)Division $ 385.3 $294.7 30.7% $15.9 $23.9 (33.5%)
% Revenue 4.1% 8.1%
</TABLE>
-12-
<PAGE> 13
DM&S' 51% revenue increase included increases of 102% in pressure sensitive
products, 44% in business forms and related management services, and 51% in
document systems and support services. These increases were primarily the result
of the Uarco acquisition. Operating profit increased compared to 1997, but
represented a lesser percentage of revenue as a result of the generally lower
profitability of the acquired Uarco business. Margins improved as the year
progressed in response to the cost reductions and other actions taken, as
described earlier.
The 31% increase in Impressions Division revenue was led by a 61% increase
in Stanfast print center shipments and a 25% growth in Imaging Services
billings; Communicolor revenue declined 1%. The acquisition had little effect on
Communicolor or Imaging Services revenues or operating profits. The impact to
Stanfast was significant, however, both in terms of revenue and operating
profit. Eight Stanfast print centers were gained in the acquisition. As a result
of geographic overlap and a relatively high cost structure, six of the eight
former Uarco print centers were closed, unprofitable business was jettisoned
and, as a result, second half operating margins improved. The Company plans to
add six new Stanfast print centers in 1999, continuing to implement its plan to
put centers in 60 major metropolitan markets.
Results of Operations: 1997 Compared to 1996
- ---------------------------------------------
Total Revenue for 1997 was $965.7 million, up 2.3% from $944 million in
fiscal 1996. Document Management and Systems Division's revenue declined 1.9%
(restating the results in each of the years to correspond to the new divisional
organizational structure put in place early in 1998), primarily reflecting a
drop in traditional business forms. Revenue from equipment, supplies, and
maintenance declined 3.3% as a result of the continuing transition from
traditional forms handling equipment to newer generation intelligent printing
systems; the drop in maintenance was due to the elimination of selected
unprofitable business. Pressure sensitive labels increased 2.1%.
The Impressions Division (restated) reported a 13.0% revenue increase,
driven by increases in Imaging Services and Stanfast Groups of 21.0% and 26.2%,
respectively. The division's promotional direct mail group, Communicolor,
reported a 4.2% revenue decline that was attributed to customers mailing fewer
pieces and to increasing competitive pressures from commercial printers.
The gross margin improved from 39.1% of revenue in 1996 to 40.3% in 1997
and was the major contributing factor to the Company's improved profitability.
This improvement was primarily to modestly improved pricing, lower average paper
prices, and other manufacturing cost improvements.
Selling, administrative, and engineering costs increased 7.0% over 1996,
reflecting increased information systems expenditures and increases in field
sales support personnel. The Company also undertook its program to make its
systems Year 2000 compliant; expenditures in the year were $.8 million.
Depreciation rose 5.3% in response to higher capital spending during the last
two years. The income tax rate dropped from 41.4% to 39.7%; 1996's higher rate
included capital losses on the Company's Russian joint venture write-off for
which a tax deduction could not be recorded as a result of the absence of
offsetting capital gains.
Net Income for 1997 was $66.9 million, 5.9% above the $63.2 million
reported for the prior year. Basic Earnings Per Share were $2.35 compared to
1996's $2.20 result. On a divisional basis, DM&S Division pretax operating
profits rose 10.3% while margins for the Impressions Division declined 13.0%.
The decline in profitability for the Impressions Division is attributed to
continued weakness in Communicolor sales, and costs associated with the rapid
growth in the Imaging Services and Stanfast groups.
-13-
<PAGE> 14
Year 2000
- ---------
The Company's program to ensure that its systems will be Year 2000
compliant was undertaken in 1997. Through year-end 1998, $7.3 million has been
expended and an additional $6.0 million in spending is budgeted in order to
bring the Company's systems into compliance no later than September 1999.
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, make necessary modifications, and test for
compliance. At this writing, this process has been completed for the Company's
order entry and manufacturing systems. Modifications are currently underway for
invoicing, accounts receivable, and financial systems; testing of these systems
is scheduled for completion by September 1999.
With regard to potential 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. Equipment sales in
1998 represented approximately 3% of total Company revenue. 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 will make
available an upgrade to a Year 2000 compliant version. The Company is using its
best efforts to notify equipment customers of their options.
The Company has initiated inquiries to its major vendors in order to judge
the likelihood and probable impact of interruptions in raw materials and other
critical supplies. Responses are continuing to come in and the Company has not
completed its analysis. The Company has a very broad customer base and does not
plan to test its customers' Year 2000 readiness.
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. However, the Company intends to put contingency plans in place
prior to year-end that would take effect should there be such a failure in a
critical system.
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 capital structure changed in 1998 primarily as a result of
the financing and integration of the Uarco acquisition:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 Change
------- ------- ------
<S> <C> <C> <C>
Cash and Short Term Investments $ 16.3 $83.6 ($67.3)
Total Debt 234.6 4.6 230.0
------ ------ ------
Net Debt $218.3 ($79.0) $297.3
====== ====== ======
Shareholders' Equity $521.0 $487.9 $ 33.1
====== ====== =======
</TABLE>
-14-
<PAGE> 15
The $230 million increase in debt represents borrowings under a $300
million five-year revolving credit agreement used to provide financing for the
Uarco acquisition. The balance of the $245.0 million purchase price, $15.0
million, came from corporate cash. Other acquisition-related expenditures in
1998 included $26.8 million charged against the opening restructuring liability,
$18.0 million to buyout high cost Uarco operating leases on long-term assets,
$5.5 million (net of tax) for integration activities charged as expense, and
$8.3 million (net of tax) in interest expense. At year-end 1998, future
restructuring expenditures related to the Uarco acquisition are estimated at
$14.8 million.
Excluding the $73.6 million described above in 1998 acquisition-related
expenditures, the balance of cash and short-term investments increased $6.4
million during the year. Expenditures for capital additions and dividends were
at record levels - $65.7 million and $23.9 million, respectively. The Company
expects 1999 capital spending to be in the $65 million to $75 million range.
At year-end 1998, current assets were 3.6 times the level of current
liabilities and the ratio of Net Debt to Total Capital was 29.5%, demonstrating
that the Company's financial condition continues to be very strong. In
management's judgment, the combination of internally generated cash flow and
available credit will be sufficient to finance the Company's near-term operating
needs.
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.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates
- --------------
The Company borrowed $230 million against its revolving credit agreement to
finance the acquisition of Uarco Incorporated. The credit line bears interest at
a floating rate of the London Interbank Offered Rate (LIBOR) plus a spread
dependent upon the net debt to total capital ratio. Through an interest rate
swap agreement, the Company has effectively converted $200 million of its
floating rate debt to a fixed rate of 6.09%. The Company has an additional $4.6
million of debt with a fixed interest rate of 6.125%.
Based on the Company's fixed interest rate debt existing at January 3,
1999, a hypothetical 100 basis point decrease in prevailing interest rates would
result in the Company's annualized interest expense being $2.046 million greater
than would exist if all debt was subject to floating interest rates.
Commodity Prices
- ----------------
Paper is the principal raw material in the production of business forms.
Because the Company has historically been successful in adjusting its sales
prices in response to changes in paper costs, management does not believe a 10%
change in paper costs would have a material effect on the Company's financial
statements.
-15-
<PAGE> 16
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements Page
<S> <C>
Independent Auditors' Report 20
Balance Sheet - January 3, 1999 and December 28, 1997 21 - 22
Statement of Income - Years ended January 3, 1999,
December 28, 1997 and December 29, 1996 23
Statement of Shareholders' Equity - Years ended
January 3, 1999, December 28, 1997 and December 29, 1996 24
Statement of Cash Flows - Years ended January 3, 1999,
December 28, 1997 and December 29, 1996 25 - 26
Notes to Consolidated Financial Statements 27 - 40
Index to Financial Statement Schedule, Years ended
January 3, 1999, December 28, 1997 and December 29, 1996
II. Valuation and Qualifying Accounts 41
</TABLE>
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 1999 Annual Meeting of shareholders.
-16-
<PAGE> 17
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
16 and are incorporated herein by reference.
3. EXHIBITS
The exhibits as listed on the accompanying index to exhibits on
page 19 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 January 3, 1999.
-17-
<PAGE> 18
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 26, 1999.
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 26, 1999:
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/S/ P. H. Granzow Chairman of the Board and Director
- ------------------------
P. H. Granzow
/S/ C. J. Brown Senior Vice-President - Administration, Treasurer,
- ------------------------ Chief Financial Officer and Chief Accounting Officer
C. J. Brown
</TABLE>
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 26, 1999 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 C. F. Sherman
P. S. Redding J. Q. Sherman, II
/S/ P. H. Granzow
--------------------
P. H. Granzow
-18-
<PAGE> 19
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, C. F.
Sherman, J. Q. Sherman II.
27. Financial Data Schedule (EDGAR version).
-19-
<PAGE> 1
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 January 3, 1999 and December 28, 1997, and the related statements
of income, shareholders' equity, comprehensive income, and cash flows for each
of the three years in the period ended January 3, 1999. 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 January 3, 1999 and December 28, 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
January 3, 1999, in conformity with generally accepted accounting principles.
/S/ BATTELLE & BATTELLE LLP
BATTELLE & BATTELLE LLP
Certified Public Accountants
Dayton, Ohio
February 1, 1999
-20-
<PAGE> 2
THE STANDARD
BALANCE
(DOLLARS IN
<TABLE>
<CAPTION>
January 3 December 28
A S S E T S 1999 1997
--------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 9,792 $ 67,556
Short-term investments 6,530 16,055
Accounts receivable, less allowance for doubtful
accounts of $14,158 and $2,864, respectively 288,103 191,031
Inventories 138,376 85,546
Deferred income taxes 19,065 6,168
Prepaid pension expense -- 5,371
Prepaid other expense 11,929 7,091
-------- --------
Total current assets 473,795 378,818
-------- --------
PLANT AND EQUIPMENT
Buildings and improvements 93,552 67,874
Machinery and equipment 306,658 237,320
Office equipment 98,209 67,324
-------- --------
Total 498,419 372,518
Less accumulated depreciation 182,218 155,634
-------- --------
Depreciated cost 316,201 216,884
Plant and equipment under construction 44,732 39,070
Land 7,228 4,081
-------- --------
Total plant and equipment 368,161 260,035
-------- --------
OTHER ASSETS
Goodwill, less accumulated amortization
of $4,491 and $321, respectively 57,825 1,868
Prepaid pension expense 73,538 --
Other 11,758 6,297
-------- --------
Total other assets 143,121 8,165
-------- --------
Total assets $985,077 $647,018
======== ========
</TABLE>
-21-
<PAGE> 3
REGISTER COMPANY
SHEET
THOUSANDS)
<TABLE>
<CAPTION>
January 3 December 28
LIABILITIES AND SHAREHOLDERS' EQUITY 1999 1997
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 525 $ --
Accounts payable 29,967 25,296
Dividends payable 6,251 5,968
Accrued compensation 44,406 34,817
Income taxes payable 1,335 1,155
Customer deposits 3,138 21,003
Deferred service contract income 8,404 7,222
Accrued restructuring 14,843 --
Other current liabilities 21,487 11,558
--------- ---------
Total current liabilities 130,356 107,019
--------- ---------
LONG-TERM LIABILITIES
Long-term debt 234,075 4,600
Retiree health care obligation 55,057 28,779
Deferred compensation 3,795 --
Deferred income taxes 40,829 18,685
--------- ---------
Total long-term liabilities 333,756 52,064
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value:
Authorized 50,500,000 shares
Issued 1998 - 24,391,072; 1997 - 24,308,437 24,391 24,308
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 33,957 31,599
Accumulated other comprehensive income (1,161)
Retained earnings 479,679 444,259
Treasury stock at cost:
1998 - 701,152 shares; 1997 - 615,073 shares (19,614) (16,956)
Common stock held in grantor trust, 26,284 shares at cost (1,012) --
--------- ---------
Total shareholders' equity 520,965 487,935
--------- ---------
Total liabilities and shareholders' equity $ 985,077 $ 647,018
========= =========
</TABLE>
See accompanying notes.
-22-
<PAGE> 4
THE STANDARD REGISTER COMPANY
STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 3 December 28 December 29
1999 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUE $1,396,869 $965,674 $943,979
---------- -------- --------
COST AND EXPENSE
Cost of products sold 874,302 576,292 575,316
Engineering and research 9,399 9,100 7,842
Selling and administrative 345,007 232,418 217,671
Depreciation and amortization 54,112 36,646 34,814
Interest 14,044 288 532
---------- -------- --------
Total cost and expense 1,296,864 854,744 836,175
---------- -------- --------
INCOME BEFORE INCOME TAXES 100,005 110,930 107,804
INCOMES TAXES
Current 37,928 40,098 42,009
Deferred 2,494 3,938 2,638
---------- -------- --------
Total income taxes 40,422 44,036 44,647
---------- -------- --------
NET INCOME $ 59,583 $ 66,894 $ 63,157
========== ======== ========
EARNINGS PER SHARE
Basic $2.10 $2.35 $2.20
========== ======== ========
Diluted $2.08 $2.33 $2.19
========== ======== ========
</TABLE>
See accompanying notes.
-23-
<PAGE> 5
THE STANDARD REGISTER COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 3 December 28 December 29
1999 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
COMMON STOCK
Beginning balance $ 24,308 $ 24,204 $ 24,142
Add shares issued under:
Management Incentive Plan 6 50 55
Dividend Reinvestment Plan 23 22 7
Stock Option Plan 54 32 -
--------- --------- ---------
Ending balance 24,391 24,308 24,204
--------- --------- ---------
CLASS A STOCK 4,725 4,725 4,725
--------- --------- ---------
CAPITAL IN EXCESS OF PAR VALUE
Beginning balance 31,599 28,705 27,450
Add excess of market over par
value of shares issued under:
Management Incentive Plan 195 1,562 1,062
Dividend Reinvestment Plan 739 709 193
Stock Option Plan 1,141 623 -
Establish grantor trust with treasury shares 283 - -
--------- --------- ---------
Ending balance 33,957 31,599 28,705
--------- --------- ---------
OTHER COMPREHENSIVE INCOME (1,161) - -
--------- --------- ---------
RETAINED EARNINGS
Beginning balance 444,259 400,387 359,334
Add net income 59,583 66,894 63,157
Less dividends declared (1998 - $.85 per share;
1997 - $.81 per share; 1996 - $.77 per share) (24,163) (23,022) (22,104)
--------- --------- ---------
Ending balance 479,679 444,259 400,387
--------- --------- ---------
TREASURY STOCK AT COST
Beginning balance (16,956) (4,775) (4,434)
Cost of common shares purchased (3,387) (12,181) (341)
Establish grantor trust with treasury shares 729 - -
--------- --------- ---------
Ending balance (19,614) (16,956) (4,775)
--------- --------- ---------
COMMON STOCK HELD IN GRANTOR TRUST
Beginning balance - - -
Establish grantor trust with treasury shares (1,012) - -
--------- --------- ---------
Ending balance (1,012) - -
--------- --------- ---------
Total shareholders' equity $ 520,965 $ 487,935 $ 453,246
========= ========= =========
COMPREHENSIVE INCOME
Net income $ 59,583 $ 66,894 $ 63,157
Minimum pension liability, net of $782
deferred income tax benefit (1,161) - -
--------- --------- ---------
Total comprehensive income $ 58,422 $ 66,894 $ 63,157
========= ========= =========
</TABLE>
See accompanying notes.
-24-
<PAGE> 6
THE STANDARD REGISTER COMPANY
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 3 December 28 December 29
1999 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 59,583 $ 66,894 $ 63,157
--------- -------- ---------
Add (deduct) items not affecting cash:
Depreciation and amortization 54,112 36,646 34,814
Loss on sale of assets 19 346 1,508
Net securities gains (7) (294) -
Loss on other investments - 1,852 4,383
Provision for deferred income taxes 2,494 3,938 2,638
Increase (decrease) in cash arising from
changes in assets and liabilities:
Trading securities 8,771 (15,000)
Accounts receivable 22,523 (12,320) 2,998
Inventories (38,194) 606 11,665
Other assets (2,243) (6,309) (2,494)
Accounts payable and accrued expenses (50,827) 5,653 220
Income taxes payable 261 (1,469) 90
Customer deposits (17,865) 16,818 (4,149)
Deferred income 1,182 (52) (1,181)
Other liabilities 3,146 1,136 1,542
--------- -------- ---------
Net adjustments (16,628) 31,551 52,034
--------- -------- ---------
Net cash provided by operating activities 42,955 98,445 115,191
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to plant and equipment (65,733) (61,287) (57,783)
Proceeds from sale of plant and equipment 5,657 432 1,692
Proceeds from sale of held-to-maturity securities 760 455 115
Acquisition (245,000) - -
Additions to other investments - (3,028) (1,008)
Other investing activities - (36) -
--------- -------- ---------
Net cash used in investing activities (304,316) (63,464) (56,984)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (1,294) - (6,471)
Proceeds from issuance of long-term debt 230,000 - -
Proceeds from issuance of common stock 2,158 2,998 1,317
Purchase of treasury stock (3,387) (12,181) (341)
Dividends paid (23,880) (22,792) (21,808)
--------- -------- ---------
Net cash provided by (used in) financing activities 203,597 (31,975) (27,303)
--------- -------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (57,764) 3,006 30,904
Cash and cash equivalents at beginning of year 67,556 64,550 33,646
--------- -------- ---------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 9,792 $ 67,556 $ 64,550
========= ======== =========
</TABLE>
See accompanying notes.
-25-
<PAGE> 7
THE STANDARD REGISTER COMPANY
STATEMENT OF CASH FLOWS (Continued)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 3 December 28 December 29
1999 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest $ 14,453 $ 141 $ 565
Income taxes 37,667 41,317 42,115
Non-cash investing activities:
Note receivable from sale of assets $ - $ - $ 650
Issuance of treasury stock to grantor trust 1,012 - -
Minimum pension liability 1,943 - -
Details of acquisiton:
Working capital $ 56,841 $ - $ -
Property, plant and equipment 98,011 - -
Other assets 74,412 -- -
Other liabilities (44,391) -- -
Excess of purchase price over fair value
of net assets acquired 60,127 - -
--------- ------- -------
Cash paid for acquisition $ 245,000 $ - $ -
========= ======= =======
</TABLE>
See accompanying notes.
-26-
<PAGE> 8
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 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.
RECLASSIFICATIONS - Certain prior year balances have been reclassified to
conform with the current year presentation.
FISCAL YEAR - The Company's fiscal year ends on the Sunday nearest to
December 31. Fiscal year ending January 3, 1999 includes 53 weeks, while fiscal
years ending December 28, 1997 and December 29, 1996 include 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 approximates market value.
SHORT-TERM INVESTMENTS - 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. 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.
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.
-27-
<PAGE> 9
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $49,896 in 1998, $36,431 in 1997, and $34,601
in 1996. Estimated asset lives are:
<TABLE>
<CAPTION>
Classification Years
-------------- -----
<S> <C>
Buildings and improvements 10-40
Machinery and equipment 5-15
Office equipment 5-15
</TABLE>
GOODWILL - Goodwill represents the excess of purchase price and related
costs over the fair value of the net assets of businesses acquired in purchase
transactions. Goodwill is being amortized on a straight-line basis over 15
years. Periodically, the Company reviews the recoverability of goodwill. In
management's opinion, no material impairment exists at January 3, 1999.
Amortized goodwill expense was $4,170 in 1998, $162 in 1997, and $159 in 1996.
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 - Basic earnings per share is the per share allocation
of net income available to shareholders based on the weighted average number of
shares outstanding during the period. Diluted earnings per share 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 PRONOUNCEMENTS - During 1998, the Company adopted Statements
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"; No.
131, "Disclosures about Segments of an Enterprise and Related Information"; and
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". The adoption of these standards has no material effect on the
Company's financial statements.
-28-
<PAGE> 10
NOTE 2 - ACQUISITION
On December 31, 1997, the Company acquired all outstanding shares of Uarco
Incorporated (UARCO) for $245,000, exclusive of acquisition costs. $230,000 of
the purchase price was financed under a new five-year bank revolving credit
agreement. UARCO produced and marketed business forms, pressure sensitive
labels, business equipment, supplies, and workflow systems to the U.S. market.
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 acquisition has been accounted for under the purchase method and,
accordingly, operating results of the UARCO business subsequent to the date of
acquisition are included in the Company's financial statements. The purchase
price has been allocated to the assets acquired and liabilities assumed based
upon the respective fair values on the date of acquisition.
Certain liabilities were also recognized in connection with the UARCO
purchase and included in the acquisition cost allocation. These liabilities
include costs relating to the closings of former UARCO production and sales
facilities, and termination and relocation of former UARCO employees. Such
recognized liabilities totaled $41,659, of which $14,843 remains unpaid and is
recorded as accrued restructuring liability at January 3, 1999.
The excess of purchase price, acquisition costs and recognized liabilities
over the fair values of the net assets acquired was $60,127 and has been
recorded as goodwill, which is being amortized on a straight-line basis over 15
years.
The following unaudited pro forma information has been prepared assuming
UARCO had been acquired at the beginning of 1997 and 1996. The pro forma
information does not necessarily reflect the results of operations that actually
would have been achieved had the acquisition been consummated as of that time.
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Revenue $ 1,435,862 $ 1,419,892
Net income 28,406 41,044
Earnings per share:
Basic $ 1.00 $ 1.43
Diluted $ .99 $ 1.42
</TABLE>
-29-
<PAGE> 11
NOTE 3 - 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 $31,530 higher at January 3, 1999
and $35,601 higher at December 28, 1997.
Inventories at the respective year-ends are as follows:
<TABLE>
<CAPTION>
January 3 December 28
1999 1997
--------- -----------
<S> <C> <C>
Finished products $ 104,982 $58,675
Jobs in process 18,075 16,500
Materials and supplies 15,319 10,371
--------- -------
Total $ 138,376 $85,546
========= =======
</TABLE>
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 3 December 28
1999 1997
--------- -----------
<S> <C> <C>
Revolving credit facility $ 230,000 $ -
Industrial development revenue bonds 4,600 4,600
--------- ---------
Total 234,600 4,600
Less current portion 525 -
--------- ---------
Long-term portion $ 234,075 $ 4,600
========= =========
</TABLE>
In December 1997, the Company entered into a five-year unsecured revolving
credit agreement with nine banks. The credit line provides for borrowings up to
$300,000. On December 31, 1997, $230,000 was borrowed against the line for
financing the acquisition of Uarco Incorporated. The credit line bears interest
at a floating rate of the London Interbank Offered Rate (LIBOR) plus a spread
dependent upon the net debt to total capital ratio. In January 1998, the Company
entered into an interest rate swap agreement that effectively converts $200,000
of its floating rate debt to a fixed rate of 6.09%. The credit line is scheduled
to expire in December 2002.
Long-term debt also includes industrial development revenue bonds issued by
Rutherford County, Tennessee. Interest is payable semi-annually at 6.125%.
Required annual bond principal payments subsequent to January 3, 1999 are as
follows: 1999 - $525; 2000 - $555; 2001 - $590; 2002 - $630; and 2003 - $2,300.
-30-
<PAGE> 12
NOTE 5 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 30,800 $ 32,933 $ 33,285
State and local 7,128 7,165 8,724
-------- -------- --------
37,928 40,098 42,009
Deferred 2,494 3,938 2,638
-------- -------- --------
Total $ 40,422 $ 44,036 $ 44,647
======== ======== ========
</TABLE>
The significant components of the deferred tax expense (benefit) are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Depreciation $ 1,848 $ 2,357 $ 853
Pension 1,961 2,039 1,712
Inventories (230) 110 267
Compensation and benefits (2,107) (431) (33)
Allowance for doubtful accounts 1,192 312 111
Retiree health care benefits (132) (457) (620)
Other (38) 8 348
-------- -------- --------
Total $ 2,494 $ 3,938 $ 2,638
======== ======== ========
</TABLE>
The components of the net deferred tax asset and liability as of January 3,
1999 and December 28, 1997 are as follows:
<TABLE>
<CAPTION>
January 3 December 28
1999 1997
--------- -----------
<S> <C> <C>
Deferred tax asset:
Allowance for doubtful accounts $ 5,701 $ 1,153
Inventories 3,546 2,524
Compensation and benefits 9,276 5,127
Pension - (2,739)
Other 542 103
--------- ---------
$ 19,065 $ 6,168
========= =========
Deferred tax liability:
Depreciation $ 32,120 $ 30,272
Pension 30,879 -
Retiree health care benefits (22,170) (11,587)
--------- ---------
$ 40,829 $ 18,685
========= =========
</TABLE>
The reconciliation of the statutory federal income tax rate and the
effective tax rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes 5.3 5.3 5.3
Other .1 (.6) 1.1
---- ---- ----
Effective tax rate 40.4% 39.7% 41.4%
==== ==== ====
</TABLE>
-31-
<PAGE> 13
NOTE 6 - 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 Class A stock. Each of the 23,663,636 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 7 - COMMON STOCK HELD IN GRANTOR TRUST
During 1998, the Company established a grantor trust ("Trust") with cash
and 26,284 shares of treasury stock. The Trust will fund the Company's
obligations under a deferred compensation plan for a select group of management.
The benefits payable from the Trust are included in the $3,795 "Deferred
compensation" liability shown on the Company's balance sheet. Obligations under
the deferred compensation plan are intended to be settled only in cash.
Therefore, the shares of the Company's common stock held by the Trust are not
considered to be potentially dilutive.
To record this transaction, the Company reduced "Treasury stock" by the
average cost of these shares to the Company, or $729, and the fair market value
of the shares was recorded as "Common stock held in grantor trust". "Capital in
excess of par value" was increased for the difference of $283 between the cost
of the shares and their fair value. Increases or decreases in the deferred
compensation liability that result from changes in the value of the Company's
common stock held by the Trust, are recognized in current income.
-32-
<PAGE> 14
NOTE 8 - 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:
<TABLE>
<CAPTION>
53 Weeks Ended January 3, 1999
---------------------------------------
Net Shares Income
Income (000's) Per Share
------ ------- ---------
<S> <C> <C> <C>
Basic $59,583 28,426 $2.10
=====
Dilutive effect of stock options -- 175
------- ------
Diluted $59,583 28,601 $2.08
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
52 Weeks Ended December 28, 1997
---------------------------------------
Net Shares Income
Income (000's) Per Share
------ ------- ---------
<S> <C> <C> <C>
Basic $66,894 28,498 $2.35
=====
Dilutive effect of stock options -- 203
------- ------
Diluted $66,894 28,701 $2.33
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
52 Weeks Ended December 29, 1996
---------------------------------------
Net Shares Income
Income (000's) Per Share
------ ------- ---------
<S> <C> <C> <C>
Basic $63,157 28,687 $2.20
=====
Dilutive effect of stock options -- 118
------- ------
Diluted $63,157 28,805 $2.19
======= ====== =====
</TABLE>
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.
-33-
<PAGE> 15
NOTE 9 - STOCK OPTION PLAN
In 1995, the Company adopted a stock option plan authorizing the issuance
of options for up to 2,000,000 shares of common stock to officers and key
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.
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:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net income As reported $59,583 $66,894 $63,157
Pro forma 57,364 65,101 62,512
Basic earnings per share As reported $ 2.10 $ 2.35 $ 2.20
Pro forma 2.02 2.28 2.18
Diluted earnings per share As reported $ 2.08 $ 2.33 $ 2.19
Pro forma 2.00 2.27 2.17
</TABLE>
The weighted average fair values of options granted in fiscal years 1998,
1997, and 1996 were estimated at $9.75, $10.58, and $10.37 per share,
respectively, using the Black-Scholes option-pricing model based on the
following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 4.7% and 5.4% 5.7% 6.2%
Dividend yield 2.0% 2.0% 2.0%
Expected life 5 years 5 years 5 years
Expected volatility 29.8% 29.7% 31.5%
</TABLE>
The following summarizes stock option activity during fiscal years 1998,
1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 924,420 $ 26.836 776,000 $ 23.772 550,000 $ 20.125
Granted 979,500 33.217 227,000 35.313 231,000 32.375
Exercised (54,180) 22.069 (32,580) 20.125 - -
Canceled (92,400) 31.478 (46,000) 21.728 (5,000) 20.125
---------- -------- -------
Outstanding, end of year 1,757,340 924,420 776,000
========= ======= =======
</TABLE>
-34-
<PAGE> 16
NOTE 9 - STOCK OPTION PLAN (CONTINUED)
Following is a summary of the status of stock options outstanding at January 3,
1999:
<TABLE>
<CAPTION>
Number Number Exercise Remaining
Outstanding Exercisable Price Term
----------- ----------- ----- ----
<S> <C> <C> <C>
408,840 220,840 $ 20.125 7 years
205,000 172,200 32.375 8 years
204,000 112,200 35.313 9 years
710,000 - 34.125 10 years
229,500 - 30.938 10 years
</TABLE>
NOTE 10 - 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 also has two non-qualified plans that 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.
During 1998, the Company adopted the disclosure requirements of Statement
of Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS 132 standardizes the
disclosure requirements for pensions and other postretirement benefits, requires
additional information on changes in benefit obligations and fair values of
assets, and eliminates certain previous disclosure requirements.
The following sets forth the reconciliation of the benefit obligations and
plan assets and the funded status for all Company pension plans:
<TABLE>
<CAPTION>
Change in Benefit Obligation 1998 1997
- ---------------------------- ---- ----
<S> <C> <C>
Benefit obligation at beginning of year $178,676 $161,934
Service cost 10,291 6,476
Interest cost 29,017 13,265
Plan participants' contributions 2,122 2,056
Amendments 564 1,118
Actuarial loss 50,196 6,820
Acquisition 193,472 --
Benefits paid (29,033) (12,993)
-------- --------
Benefit obligation at end of year $435,305 $178,676
======== ========
</TABLE>
-35-
<PAGE> 17
NOTE 10 - PENSION PLANS (CONTINUED)
<TABLE>
<CAPTION>
Change in Plan Assets 1998 1997
--------------------- ---- ----
<S> <C> <C>
Fair value of plan assets at beginning of year $ 204,935 $ 150,857
Actual return on plan assets 3,739 51,987
Participants' contributions 2,122 2,056
Employer contributions 3,646 13,028
Acquisition 262,031 --
Benefits paid (29,033) (12,993)
--------- ---------
Fair value of plan assets at end of year $ 447,440 $ 204,935
========= =========
Funded status $ 12,135 $ 26,259
Unrecognized net actuarial loss (gain) 54,253 (28,285)
Unrecognized prior service cost 10,300 8,947
Unrecognized transition amount -- (119)
Minimum pension liability (3,150) (1,431)
--------- ---------
Prepaid pension expense shown in balance sheet $ 73,538 $ 5,371
========= =========
Minimum pension liability:
Intangible asset $ 1,207 $ 1,431
Deferred income tax benefit 782 --
Charge to shareholders' equity 1,161 --
--------- ---------
Total $ 3,150 $ 1,431
========= =========
</TABLE>
Net periodic benefit cost includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost of benefits earned $ 10,291 $ 6,476 $ 5,734
Interest cost on projected benefit
obligation 29,017 13,265 12,431
Expected return on plan assets (41,265) (15,131) (12,433)
Amortization of prior service costs 2,322 1,950 1,950
Amortization of transition asset (120) (120) (605)
Amortization of net loss from prior periods 238 117 62
Cost of early retirement window 237 1,118 --
-------- -------- --------
Net periodic benefit cost $ 720 $ 7,675 $ 7,139
======== ======== ========
</TABLE>
The weighted average discount rates used in determining the actuarial
present value of the projected benefit obligation were 7.0% for 1998 and 8.5%
for 1997 and 1996. The rate of increase for future compensation levels used in
determining the obligation was 5.0 percent for 1998, 1997 and 1996. The expected
long-term rate of return on plan assets in 1998, 1997 and 1996 was 10.5 percent.
The Company's two non-qualified plans have no plan assets. The total
unfunded projected benefit obligations of these two plans were $22,099, $9,470,
and $6,421 at the respective 1998, 1997 and 1996 year ends. The related
accumulated benefit obligations were $16,947, $5,172, and $3,440 at the same
respective year ends. Minimum pension liability adjustments of $3,150 and $1,431
were recorded in 1998 and 1997, respectively. Corresponding amounts were
recognized as intangible assets to the extent of unrecognized prior service cost
and unrecognized transition amount. At January 3, 1999, $1,943 of excess minimum
liability resulted in a reduction of shareholders' equity, net of $782 related
deferred tax benefit. The net $1,161 reduction of shareholders' equity is
accounted for as a component of "Comprehensive Income".
-36-
<PAGE> 18
NOTE 11 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides certain
health care benefits for eligible retired employees. The following table sets
forth the reconciliation of the benefit obligation and the funded status for
this plan:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Change in Accumulated Postretirement Benefit Obligation
- -------------------------------------------------------
Beginning balance $ 28,779 $ 29,182
Service cost -- --
Interest cost 4,077 2,401
Actuarial loss (gain) 1,543 (4,721)
Acquisition 25,951 0
Net retiree benefits paid (3,702) (1,265)
-------- --------
Ending balance $ 56,648 $ 25,597
Plan assets -- --
-------- --------
Funded status $ 56,648 $ 25,597
Unrecognized net actuarial (gain) loss (1,591) 3,182
-------- --------
Retiree health care obligation shown
in balance sheet $ 55,057 $ 28,779
======== ========
</TABLE>
The components of postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Service cost $ -- $ -- $ --
Interest cost 4,077 2,401 2,728
Amortization of net (gain) loss from prior periods (48) -- 266
------- ------ ------
Net postretirement benefit cost $ 4,029 $2,401 $2,994
======= ====== ======
</TABLE>
The funding policy is to pay claims as they occur. Payments for
postretirement health benefits, net of retiree contributions, amounted to
$3,702, $1,265 and $1,452 in 1998, 1997, and 1996, respectively.
The accumulated benefit obligation was determined using the unit credit
method and assumed discount rates of 7.0% for 1998 and 8.5% for 1997 and 1996.
The assumed current health care cost trend rate is 10.0% in 1998 and gradually
decreases to 5.0% in the year 2007.
A one percent increase in the health care cost trend rates used would
result in a $211 increase in the service and interest components of expense for
1998 ($298 for 1997) and a $2,771 increase in the postretirement benefit
obligation at January 3, 1999 ($3,048 increase at December 28, 1997).
A one percent decrease in the health care cost trend rates used would
result in a $186 decrease in the service and interest components of expense for
1998 and a $2,445 decrease in the postretirement benefit obligation at January
3, 1999. The effects of a one percent decrease were not determined for 1997.
-37-
<PAGE> 19
NOTE 12 - CONCENTRATION OF CREDIT RISK
Financial instruments that 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 is, 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 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
January 3, 1999 December 28, 1997
---------------------- ----------------------
Fair Carrying Fair Carrying
Value Amount Value Amount
----- ------ ----- ------
<S> <C> <C> <C> <C>
Assets
Cash and equivalents $ 9,792 $ 9,792 $ 67,556 $ 67,556
Securities held to maturity - - 760 760
Trading securities 6,530 6,530 15,295 15,295
Liabilities
Long-term debt $237,083 $234,600 $ 4,695 $ 4,600
</TABLE>
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, including the current portion, is estimated using a
discounted cash flow analysis based on the Company's assumed incremental
borrowing rates for similar types of borrowing arrangements.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Purchase commitments for capital improvements aggregated $10,036 at January
3, 1999. Also, the Company has purchase commitments for equipment for resale of
$923 at January 3, 1999. 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 $46,838 in 1998, $25,450 in 1997, and
$23,320 in 1996.
Rental commitments under existing leases at January 3, 1999, are:
<TABLE>
<CAPTION>
Computer and
Real Sales Transportation Other
Estate Offices Equipment Equipment Total
------ ------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
1999 $14,621 $9,789 $671 $7,233 $32,314
2000 13,801 7,260 437 5,086 26,584
2001 8,709 5,655 367 3,045 17,776
2002 4,636 3,531 351 1,488 10,006
2003 1,854 1,546 276 932 4,608
Later years 39 238 177 - 454
</TABLE>
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.
-38-
<PAGE> 20
NOTE 15 - SEGMENT REPORTING INFORMATION
During 1998, the Company adopted the disclosure requirements of Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS 131 uses a "management approach" to
disclose financial and descriptive information about an enterprise's reportable
operating segments that is based on reporting information the way management
organizes the segments for making operating decisions and assessing performance.
The Company has determined that its operating activities consist of two
reportable operating segments resulting from its 1998 internal realignment. One
operating segment is the Document Management and Systems Division (DM&SD) into
which the Company's core businesses have been concentrated. Products and
services provided by this division include paper-based and electronic business
forms, document security and document management solutions, and pressure
sensitive labels. The second operating segment is the faster growing Impressions
Division that provides direct mail, commercial printing, print on demand, and
phone cards/smart cards products and services. Each division provides marketing,
research and development, manufacturing, and administrative support for their
respective products and services. Financial information about the Company's
reportable operating segments is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- -------- --------
<S> <C> <C> <C>
Revenue:
DM&SD $ 1,010,294 $667,726 $680,497
Impressions 385,318 294,722 260,792
Corporate 1,257 3,226 2,689
----------- -------- --------
Total revenue $ 1,396,869 $965,674 $943,978
=========== ======== ========
Income Before Income Taxes:
DM&SD $ 97,987 $ 87,036 $ 78,921
Impressions 15,865 23,867 27,421
Corporate (13,847) 27 1,462
----------- -------- --------
Total income before income taxes $ 100,005 $110,930 $107,804
=========== ======== ========
Identifiable Assets:
DM&SD $ 591,777 $381,419 $363,334
Impressions 183,724 167,362 153,591
Corporate 209,576 98,237 71,188
----------- -------- --------
Total identifiable assets $ 985,077 $647,018 $588,113
=========== ======== ========
Depreciation and Amortization Expense:
DM&SD $ 27,423 $ 18,111 $ 18,221
Impressions 16,727 15,104 13,251
Corporate 9,962 3,431 3,342
----------- -------- --------
Total depreciation and amortization expense $ 54,112 $ 36,646 $ 34,814
=========== ======== ========
Capital Expenditures:
DM&SD $ 20,373 $ 25,266 $ 27,599
Impressions 12,388 18,257 25,516
Corporate 32,972 17,764 4,668
----------- -------- --------
Total capital expenditures $ 65,733 $ 61,287 $ 57,783
=========== ======== ========
</TABLE>
In computing income before income taxes for each operating segment, the
following items have been excluded and reported as corporate: interest expense,
goodwill amortization, LIFO adjustments, and income from investments.
-39-
<PAGE> 21
NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data follow:
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------------------
March 29 June 28 September 27 January 3
1998 1998 1998 1999
-------- ------- ------------ ---------
<S> <C> <C> <C> <C>
Revenue $344,057 $333,654 $340,648 $378,510
Gross margin* 121,584 123,477 130,239 147,267
Net income 9,691 12,368 17,217 20,307
Basic earnings per share .34 .44 .61 .71
Diluted earnings per share .34 .43 .60 .71
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
--------------------------------------------------------------------
March 30 June 29 September 28 December 28
1997 1997 1997 1997
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
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
</TABLE>
* Revenue less cost of products sold.
-40-
<PAGE> 22
SCHEDULE II
THE STANDARD REGISTER COMPANY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE THREE YEARS ENDED JANUARY 3, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
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
- ----------- --------- ------------ --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended January 3, 1999
- --------------------------
Allowance for doubtful
accounts $ 2,864 $ 5,053 $ 19,667(c) $ 13,426(a) $ 14,158
Inventory obsolescence 2,856 2,685 1,048(c) 2,247(b) 4,342
Restructuring liability -0- -0- $ 41,659(c) 26,816(d) 14,843
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
</TABLE>
(a) Net uncollectible accounts written off
(b) Obsolete inventory scrapped or written down to realizable value
(c) Recognized in connection with purchase business combination
(d) Payment of exit costs for acquired business
-41-
<PAGE> 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, 333-43055, 333-51189, 333-51181 and 333-57779.
/S/ BATTELLE & BATTELLE LLP
BATTELLE & BATTELLE LLP
Dayton, Ohio
March 26, 1999
-42-
<PAGE> 1
EX-24
P O W E R O F A T T O R N E Y
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 February 18, 1999.
/S/ R. W. Begley, Jr. /S/ D.L. Rediker
- ---------------------------- ----------------------------
R. W. Begley, Jr. D.L. Rediker
/S/ F. D. Clark, III /S/ A. Scavullo
- ---------------------------- ----------------------------
F. D. Clark, III A. Scavullo
/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
Signed and acknowledged in the presence of:
/S/ P. H. Granzow /S/ K.A Lamme
- ---------------------------- ----------------------------
P. H. Granzow, Chairman of K.A. Lamme, Corporate Vice President,
the Board of Directors of Secretary and Deputy General Counsel 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 February 18,
1999.
/S/ K.A Lamme
---------------------------
K.A. Lamme
Notary Public
[ Notary Seal ]
-43-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STANDARD
REGISTER COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED JANUARY 3, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-3-1999
<PERIOD-END> JAN-3-1999
<CASH> 9,792
<SECURITIES> 6,530
<RECEIVABLES> 302,261
<ALLOWANCES> 14,158
<INVENTORY> 138,376
<CURRENT-ASSETS> 473,795
<PP&E> 550,379
<DEPRECIATION> 182,218
<TOTAL-ASSETS> 985,077
<CURRENT-LIABILITIES> 130,356
<BONDS> 234,600
0
0
<COMMON> 29,116
<OTHER-SE> 491,849
<TOTAL-LIABILITY-AND-EQUITY> 985,077
<SALES> 1,395,119
<TOTAL-REVENUES> 1,396,869
<CGS> 874,302
<TOTAL-COSTS> 1,296,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,053
<INTEREST-EXPENSE> 14,044
<INCOME-PRETAX> 100,005
<INCOME-TAX> 40,422
<INCOME-CONTINUING> 59,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,583
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.08
</TABLE>
