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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 2, 2000
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 | 45408 |
| (Address of principal executive offices) | (Zip Code) |
| (937) 221-1000 |
| (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 17, 2000 was approximately $157,202,540, based on a closing sales price of $13.938 per share on March 17, 2000.
At March 17, 2000, the number of shares outstanding of the issuer's classes of common stock are as follows:
| Common stock, $1.00 par value | 22,636,328 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 19, 2000.
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 April 1, 1999, the Company sold the Communicolor promotional direct mail operation to R.R. Donnelley and Sons Company for $97.9 million. The Company's annual revenue from this specialized direct mail segment was approximately $100 million, or about 7% of total revenue. The Company believes that shareholders will be better served by redirecting its investment to the Company's core document products and services.
Following the April 1, 1999 sale of Communicolor, the Company reorganized into one identifiable operating segment effective July 1, 1999. With the elimination of the divisional operating structure, the Company is aligned along functional lines (e.g., sales, manufacturing, finance) designed to improve the effectiveness of customer service throughout the organization. The new structure brings an integrated set of the Company's products and services to our customers.
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. The Company believes that it is 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 (R) 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.
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.
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 32 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.
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 a newly purchased 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 55 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.
During 1999, the Company had engineering and research expense, relating to continuing operations, of $8.9 million compared to $9.0 and $8.6 million for 1998 and 1997, 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 111 professional employees.
Expenditures for property, plant and equipment totaled $67.6 million in 1999, compared to $65.7 million and $61.3 million in 1998 and 1997, 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 4.2 to 1 at January 2, 2000 as compared to 3.6 to 1 at January 3, 1999 and 3.5 to 1 at December 28, 1997. Total debt, including long-term and current maturities, was 27.3% of total capital at year-end 1999, compared to 31.0% and 0.9% for years-end 1998 and 1997, 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 29, 2000 was $67.7 million compared to $81.4 million and $85.7 million at February 28, 1999 and February 28, 1998, respectively. 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 29, 2000, the Company had 8,134 employees compared to 8,682 and 9,743 at February 28, 1999 and February 28, 1998, 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 .05% of total revenue.
Item 2 - PROPERTIES
The Company operates major production facilities located in the following cities:
Boothwyn, Pennsylvania
Charlotte, North Carolina
Cincinnati, Ohio
Dayton, Ohio
Fayetteville, Arkansas
Kirksville, Missouri
Middlebury, Vermont
Murfreesboro, Tennessee
Phoenix, Arizona
Porterville, California
Radcliff, Kentucky
Rochester, New York
Rocky Mount, Virginia
Sacramento, California
Salisbury, Maryland
Shelbyville, Indiana
Spring Grove, Illinois
Tampa, Florida
Terre Haute, Indiana
Toccoa, Georgia
Tolland, Connecticut
Watseka, Illinois
York, Pennsylvania
Of these facilities, Phoenix, Arizona, Rochester, New York, Sacramento, California, Tampa, Florida, Toccoa, Georgia, and Tolland, Connecticut are leased.
In addition, the Company operates 32 smaller Stanfast Print Centers. In most cases these facilities are located in major metropolitan locations in the U.S. and are leased.
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 - 85 percent utilization range, averaging an estimated 70 percent overall. The Company believes its production facilities are suitable to meet future production needs.
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
|
Name |
Age |
Office and Experience |
Officer
Since |
| Donna L. Beladi | 50 | Corporate Vice President, Business Development. Ms. Beladi has served in this position since January, 2000. Previously she held positions as Associate Vice President, Corporate Planning & Development and Director of Business Planning. Prior to joining Standard Register in January 1996, she was Associate Vice President, Strategy and Planning, Computer Systems Group at NCR Corporation from 1995 to 1996. From 1994 to 1995, she was Associate Vice President, Industry Marketing Strategy at NCR Corporation. | 2000 |
| Craig J. Brown | 50 | Senior Vice President, Administration, 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. | 1987 |
| Brian W. Calabro | 43 | Senior Vice President, Sales. Mr. Calabro has served in his current position since July 1999. He previously served as Corporate Vice President, Sales from April 1997 to July 1999, and General Sales Manager, National Accounts from July 1994 to April 1997. | 1997 |
| H. Franklin Coffman | 61 | Corporate Vice President, Corporate 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. | 1995 |
| Peter A. Dorsman | 44 | Appointed Executive Vice President and Chief Operating Officer in February 2000. He served as Senior Vice President and General Manager, Document Management and Systems Division January 1998 to January 2000. He was 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. | 1996 |
| Paul H. Granzow | 72 | Chairman, Board of Directors. Mr. Granzow has served as Chairman of the Board of Directors since January 1984. He is co-trustee of the John Q. Sherman Trust. | 1984 |
| Kathryn A. Lamme | 53 | Corporate Vice President, Secretary and 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. | 1998 |
| J. Doug Patterson | 45 | Corporate Vice President, Chief Information Officer. Prior to joining Standard Register in January 1998, Mr. Patterson served as Vice President, Information Systems for Uarco Incorporated since November 1993. | 1998 |
| Peter S. Redding | 61 | President and Chief Executive Officer. 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. | 1981 |
| John E. Scarpelli | 56 | Corporate Vice President, Human 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. | 1995 |
| Harry A. Seifert, Jr. | 62 | Appointed Senior Vice President for Manufacturing and International Operations in February 2000. He served as Corporate Vice President and General Manager, Rotary Group from March 1998 to January 2000. 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. | 1987 |
| Edward R. Wohlwender
|
39 | Joined Company as Senior Vice President, Supply Chain Services in July 1999. Prior to his association with Standard Register, Mr. Wohlwender was Senior Manager for Ernst & Young LLP since June 1997. From 1990 to 1997, Mr. Wohlwender held the position of Director, Logistics for Hillshire Farms & Kahns, Division of Sara Lee. | 1999 |
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.
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.
| 1999 |
| Cash | ||||||||
| Quarter | Dividend | High | Low | Last | ||||
| 1st | $0.22 | $33.25 | $27.38 | $28.81 | ||||
| 2nd | $0.22 | $32.13 | $28.50 | $30.44 | ||||
| 3rd | $0.22 | $30.88 | $22.69 | $23.00 | ||||
| 4th | $0.22 | $23.63 | $19.00 | $19.38 | ||||
| 1998 |
| Cash | ||||||||
| Quarter | Dividend | High | Low | Last | ||||
| 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 |
(b.) The number of shareholders of record of the Company's common stock as of March 17, 2000 was 3,212, 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.
Item 6 - SELECTED FINANCIAL DATA
| Selected Income Statement Data | 1999 | 1998 | 1997 | 1996 | 1995 |
| Thousands except for per share data |
| Revenue | $1,326,681 | $1,299,615 | $867,842 | $841,816 | $787,605 | |||||
| Net income from continuing | ||||||||||
| operations | 55,740 | 57,013 | 63,723 | 59,002 | 38,431 | |||||
| Earnings per share: | ||||||||||
| Basic | 1.99 | 2.01 | 2.24 | 2.06 | 1.34 | |||||
| Diluted | 1.98 | 1.99 | 2.22 | 2.05 | 1.34 | |||||
| Selected Balance Sheet Data | ||||||||||
| Total assets | $961,639 | $985,077 | $647,018 | $588,113 | $555,503 | |||||
| Long-term debt | 203,520 | 234,075 | 4,600 | 4,600 | 4,600 | |||||
| Other | ||||||||||
| Cash dividends paid per share | 0.88 | 0.84 | 0.80 | 0.76 | 0.72 |
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations: 1999 Compared to 1998
Net Income was $70.9 million or $2.52 per diluted share in 1999 compared to $59.6 million and $2.08 per diluted share in 1998.
On April 1, 1999, the Company sold its promotional direct mail printing operation, Communicolor, to R.R. Donnelley and Sons Company for $97.9 million, recording a net gain of $15.7 million, equivalent to $.56 per diluted share. Communicolor's prior 12 months sales were just under $100 million, representing about 7 percent of Standard Register's total revenue. Communicolor had a net operating loss of $.5 million in the first quarter 1999 prior to the sale, compared to net profits of $2.6 million and $3.2 million for the total years of 1998 and 1997, respectively.
Excluding the profit or loss on Communicolor operations and the gain on its sale, Net Income from Continuing Operations was $55.7 million in 1999 compared to $57.0 million in 1998; Net Income Per Diluted Share was $1.98 in 1999 versus $1.99 in the prior year. A summary level comparison appears below; dollar amounts are in millions.
| 1999 | 1998 | Change | |||
| Revenue | $1,326.7 | $1,299.6 | $27.1 | ||
| Gross Margin | 507.5 | 496.0 | 11.5 | ||
| % Revenue | 38.3% | 38.2% | |||
| S,G&A Expenses | 353.3 | 341.3 | 12.0 | ||
| Earnings Before Interest, Taxes, | |||||
| Depreciation and Amortization | 154.2 | 154.7 | ( 0.5) | ||
| % Revenue | 11.6% | 11.9% | |||
| Depreciation and Amortization | 50.9 | 45.0 | 5.9 | ||
| Interest Expense | 13.8 | 14.0 | ( 0.2) | ||
| Pretax Profit | 89.5 | 95.7 | ( 6.2) | ||
| % Revenue | 6.7% | 7.4% | |||
| Income Tax | 33.8 | 38.7 | ( 4.9) | ||
| % Rate | 37.7% | 40.4% | |||
| Net Profit on Continuing Operations | $55.7 | $57.0 | ($ 1.3) | ||
| Earnings per diluted share | $1.98 | $1.99 |
Total Revenue on Continuing Operations was $1.3 billion, a 2.1% increase over the 1998 results. Revenue from traditional business forms and related services declined 4 percent, but still provided a solid source of cash generation for the Company. Our newer products and services generated a revenue growth of 10 percent for the year. This growth category, including pressure sensitive labels, document systems, commercial printing, imaging fulfillment and print-on-demand products and services, represented 48 percent of total revenue in 1999, compared to 44 percent in 1998.
Sales performance in 1999, particularly early in the year, was undermined to some degree by the residual effects of having combined the former Standard Register and Uarco sales operations during 1998. Turnover was high by historical standards, which resulted in some lost accounts and higher recruiting and training costs during 1999. The rate of turnover was markedly lower at year-end 1999.
The Gross Margin was $507.5 million in 1999, compared to $496.0 million in 1998. In percentage terms, the Gross Margin was 38.3 percent in 1999, slightly improved from the 38.2 percent result for the prior year. On an operating basis, excluding the effects of LIFO inventory accounting adjustments in each year, the gross margin improved from 37.9 percent of revenue in 1998 to 38.6 percent in 1999. This improvement occurred broadly across most product groups, primarily reflecting cost reductions achieved in the second half of 1998 as a result of plant consolidations and other integration actions that followed the January 1998 acquisition of Uarco.
LIFO inventory accounting adjustments reduced the gross margin by $4.9 million in 1999, equivalent to $.10 per diluted share, and improved the gross margin in 1998 by $4.1 million, or $.09 per diluted share. This $.19 per share swing occurred as the price of paper dropped steadily during 1998 and then regained most of its lost ground during 1999, ending the year near January 1998 levels.
Paper prices are expected to continue to rise in 2000, evidenced by paper companies' recent announcements of a March 1st 8.0 percent increase in white uncoated free sheet papers. The Company has historically been successful in passing most paper cost increases through to its customers within a span of one or two quarters, and plans to raise form prices in response to this latest round of raw material increases.
Total operating expenses for 1999, including selling, administrative, and engineering expenses, increased $12.0 million or 3.5 percent over the prior year and represented 26.7 percent of revenue in 1999 compared to 26.3 percent in 1998. Several 1999 expense items are noteworthy in relation to the prior year:
- Y2K spending was $1.7 million lower in 1999 as preparations were completed in September 1999.
- High sales turnover, primarily as a fallout of the Uarco acquisition, resulted in $2.4 million in year-end charges related to accounts receivable and custom stored inventories.
- As outlined in the Company's Form 10-Q Report for the quarter ended October 3, 1999, a three-year project was undertaken to install new operating software throughout the Company. Total expense in 1999 was $3.2 million, in line with expectations. Project expenses are expected to total $12.0 million, or $.26 per share in 2000.
- Spending on SMARTworks (R), the Company's e-commerce document management system, was $1.4 million higher than in 1998.
- Several cost reduction projects with payoffs expected in 2000 received $1.2 million in funding in the fourth quarter 1999.
The above items represented $6.5 million of the increase in SG&A spending, equivalent to $.14 per diluted share.
Depreciation and amortization increased $5.9 million to $50.9 million, reflecting higher capital spending in 1998 and 1999.
The effective income tax rate for 1999 was 37.7 percent, compared to 40.4 percent in 1998. The sale of Communicolor in 1999 resulted in a capital gain that permitted the Company to deduct offsetting capital losses incurred but not deductible in previous years, which created a 2.3 percentage point reduction in the effective tax rate. The effective tax rate should return to normal historical levels in 2000.
Results of Operations: 1998 Compared to 1997
Net Income in 1998 was $59.6 million or $2.08 per diluted share, compared to $66.9 million and $2.33 per diluted share in 1997. Net Income from Continuing Operations, excluding the profit contribution from the divested Communicolor operating unit, was $57.0 million in 1998 or $1.99 per diluted share, versus $63.7 million and $2.22 per diluted share in 1997. A summary statement of continuing operations appears below; dollar amounts are in millions.
| 1998 | 1997 | Change | |||
| Revenue | $1,299.6 | $867.8 | $431.8 | ||
| Gross Margin | 496.0 | 362.3 | 133.7 | ||
| % Revenue | 38.2% | 41.7% | |||
| S,G&A Expenses | 341.3 | 228.9 | 112.4 | ||
| Earnings Before Interest, Taxes, | |||||
| Depreciation and Amortization | 154.7 | 133.4 | 21.3 | ||
| % Revenue | 11.9% | 15.4% | |||
| Depreciation and Amortization | 45.0 | 27.4 | 17.6 | ||
| Interest Expense | 14.0 | 0.3 | 13.7 | ||
| Pretax Profit | 95.7 | 105.7 | ( 10.0) | ||
| % Revenue | 7.4% | 12.2% | |||
| Income Tax | 38.7 | 42.0 | ( 3.3) | ||
| % Rate | 40.4% | 39.7% | |||
| Net Profit on Continuing Operations | $57.0 | $63.7 | ($ 6.7) | ||
| Earnings per diluted share | $1.99 | $2.22 |
The acquisition of Uarco Incorporated, which became effective during the first week of the Company's fiscal 1998 reporting period, figured prominently in the results of operations for that year. Uarco had been unprofitable for several years prior to the acquisition, reporting a $39 million pretax loss before interest and taxes on revenues of $474 million for the year prior to Standard Register's purchase. The Company paid $245 million in cash for Uarco and assumed no financial debt. The transaction created $60.1 million of goodwill.
The Company's business plan was to achieve cost reductions through the consolidation of the two companies' operations and to gradually improve pricing in unprofitable acquired accounts. Three major forms printing plants and seven smaller print centers were closed with selected production capacity relocated to nearby facilities. The former Uarco headquarters was closed and the facility was sold. The field sales operations for the two companies were consolidated, eliminating 120 office leases. Warehouses were consolidated and several high cost operating leases were bought out. These and other cost saving actions were implemented as the year progressed, with most taking effect in the second half of the year.
Revenue from Continuing Operations increased 50%, primarily as a result of the Uarco acquisition. The Company did not meet its objective for price increases in unprofitable accounts. This was attributed in major part to declining paper prices, which undermined efforts to raise business forms prices.
The percentage Gross Margin improved markedly in each successive quarter of 1998 as a result of declining paper prices and cost reductions from on-going consolidations described earlier. For the total year, however, the percentage gross margin declined by 3.5 percentage points from 41.7 percent in 1997 to 38.2 percent in 1998. This drop reflected the generally lower pricing levels on acquired business.
SG&A Expenses in 1998 were 26.3 percent of revenue, slightly below the 26.4 percent recorded in 1997. The 1998 expense included $9.1 million spent on acquisition integration activities and $6.5 million for Y2K conformance. The $17.6 million increase in depreciation and amortization primarily reflected the addition of $98 million in Uarco capital assets and the addition of $60.1 million in goodwill. The $13.7 million increase in interest expense resulted from $230 million borrowed to finance the acquisition.
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 financial condition remains very strong, as indicated by the comparative year-end capital structures presented below; amounts are in millions:
| 1999 | 1998 | Change | |||
| Cash and Trading Securities | $57.3 | $16.3 | $41.0 | ||
| Total Debt | 203.5 | 234.6 | ( 31.1) | ||
| Net Debt | 146.2 | 218.3 | 72.1 | ||
| Shareholders' Equity | $541.7 | $521.0 | $20.7 | ||
| Net Debt % of Total Capital | 21.3% | 29.5% |
The balance of cash and trading securities increased $41.0 million as a net result of the following items:
| $ Mil | |
| Proceeds from the sale of Communicolor | $97.9 |
| Tax on the gain on the sale of Communicolor | ( 10.6) |
| Repayment of debt | ( 31.1) |
| Repurchase of Standard Register stock | ( 28.2) |
| Acquisition of Printing Plant | ( 10.4) |
| Free cash flow from operations | |
| after capital and dividends | 23.4 |
| Net increase | $41.0 |
In December 1997, the Company entered into a five year $300 million bank revolving credit agreement and subsequently borrowed $230 million to finance the majority of its acquisition of Uarco. During 1999, the Company repaid $30 million, resulting in a $200 million balance outstanding at year-end 1999. The Company has effectively fixed the borrowing rate at an all-in cost of 6.09% by entering into a $200 million swap agreement that expires in January 2003.
The Company repurchased 1.1 million of its shares on the open market during 1999 at a total cost of $28.2 million; the average price paid per share was $24.79.
The Company acquired a commercial printing facility located in Boothwyn, Pennsylvania from the Dupont Corporation at a cost of $10.4 million.
The $23.4 million in net cash inflow from operations was after the deduction of $57.2 million in capital spending (excludes $10.4 million acquisition) and dividend expenditures of $24.7 million. Capital spending in 2000 is expected to be in the $65 million to $75 million range.
The combination of the $57 million in year-end 1999 cash reserves, internally generated cash flow, and the $100 million in available debt capacity under the revolving credit agreement is expected to be more than sufficient to meet operating cash needs over the next year.
Subsequent Event
On February 18, 2000, the Company announced a restructuring plan designed to reduce future operating costs. The Company plans to reduce excess production capacity for selected business form products for which industry demand has declined. The Company will close its Corning, Iowa forms printing plant in the first quarter 2000 and will relocate some productive capacity to other facilities. The Company will also phase out the Dayton, Ohio production of certain forms handling equipment products that are approaching the end of their life cycle. In addition, the Company will offer enhanced early retirement benefits to a number of employees in the Dayton, Ohio corporate headquarters. These and other cost reduction actions will result in a restructuring charge in the first quarter 2000 that is expected to be in the $15 million to $18 million range. This charge will be comprised of asset write-downs and cash closing costs. The Company expects to realize savings sufficient to recover the cash closing costs in less than one year.
Forward-Looking Statements
This report includes forward-looking statements covered by the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These statements involve important assumptions, risks, uncertainties and other factors that could cause the Company's actual results for fiscal year 2000 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 has $200 million borrowed against its revolving credit agreement. 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 an all-in fixed rate of 6.09%. The Company has an additional $3.5 million of debt with a fixed interest rate of 6.125%.
Based on the Company's fixed interest rate debt existing at January 2, 2000, 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.
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| Index to Financial Statements | Page |
| Independent Auditors' Report | 18 |
| Balance Sheet - January 2, 2000 and January 3, 1999 | 19 - 20 |
| Statement of Income - Years ended January 2, 2000, | |
| January 3, 1999 and December 28, 1997 | 21 |
| Statement of Shareholders' Equity - Years ended | |
| January 2, 2000, January 3, 1999 and December 28, 1997 | 22 |
| Statement of Cash Flows - Years ended January 2, 2000, | |
| January 3, 1999 and December 28, 1997 | 23 - 24 |
| Notes to Consolidated Financial Statements | 25 - 36 |
| Index to Financial Statement Schedule, Years ended | |
| January 2, 2000, January 3, 1999 and December 28, 1997 | |
| II. Valuation and Qualifying Accounts | 37 |
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
Items 10, 11, 12 and 13 are incorporated by reference from the Company's Proxy Statement for the 2000 Annual Meeting of shareholders.
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 15 and are incorporated herein by reference.
3. Exhibits
The exhibits as listed on the accompanying index to exhibits on page 17 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 2, 2000.
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 24, 2000.
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 24, 2000:
| Signatures | Title |
| /S/ P. H. Granzow | Chairman of the Board and Director |
| P. H. Granzow | |
| /S/ C. J. Brown | Senior Vice-President - Administration, Treasurer, |
| C. J. Brown | Chief Financial Officer and Chief Accounting Officer |
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 24, 2000 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 | J.Q. Sherman, II |
| P. S. Redding | |
/S/ P. H. Granzow
P. H. Granzow
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, J. Q. Sherman II. |
| 27. | Financial Data Schedule (EDGAR version). |
EX-13
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 2, 2000 and January 3, 1999, and the related statements of income, shareholders' equity, comprehensive income, and cash flows for each of the three years in the period ended January 2, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on 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 2, 2000 and January 3, 1999, and the results of its operations and its cash flows for each of the three years in the period ended January 2, 2000, in conformity with generally accepted accounting principles.
/S/ BATTELLE & BATTELLE LLP
BATTELLE & BATTELLE LLP
Certified Public Accountants
Dayton, Ohio
January 29, 2000
| THE STANDARD REGISTER COMPANY | |||
| BALANCE SHEET
(Dollars in thousands) | |||
| January 2 | January 3 | ||
| A S S E T S | 2000 | 1999 | |
| CURRENT ASSETS | |||
| Cash and cash equivalents | $ 56,957 | $ 9,792 | |
| Trading securities | 380 | 6,530 | |
| Accounts receivable, less allowance for doubtful | |||
| accounts of $3,477 and $14,158, respectively | 262,005 | 288,103 | |
| Inventories | 131,754 | 138,376 | |
| Prepaid income taxes | 1,448 | - | |
| Deferred income taxes | 13,720 | 19,065 | |
| Prepaid expense | 11,316 | 11,929 | |
| Total current assets | 477,580 | 473,795 | |
| PLANT AND EQUIPMENT | |||
| Buildings and improvements | 89,528 | 93,552 | |
| Machinery and equipment | 242,641 | 306,658 | |
| Office equipment | 100,614 | 98,209 | |
| Total | 432,783 | 498,419 | |
| Less accumulated depreciation | 161,849 | 182,218 | |
| Depreciated cost | 270,934 | 316,201 | |
| Plant and equipment under construction | 46,966 | 44,732 | |
| Land | 10,243 | 7,228 | |
| Total plant and equipment | 328,143 | 368,161 | |
| OTHER ASSETS | |||
| Goodwill, less accumulated amortization | |||
| of $8,024 and $4,491, respectively | 52,140 | 57,825 | |
| Prepaid pension expense | 88,111 | 73,538 | |
| Other | 15,665 | 11,758 | |
| Total other assets | 155,916 | 143,121 | |
| See accompanying notes. | |||
| THE STANDARD REGISTER COMPANY | |||
| BALANCE SHEET
(Dollars in thousands) | |||
| January 2 | January 3 | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | 2000 | 1999 | |
| CURRENT LIABILITIES | |||
| Current portion of long-term debt | $ - | $ 525 | |
| Accounts payable | 38,356 | 29,967 | |
| Dividends payable | 6,302 | 6,251 | |
| Accrued compensation | 38,672 | 44,406 | |
| Income taxes payable | - | 1,335 | |
| Customer deposits | 263 | 3,138 | |
| Deferred service contract income | 7,892 | 8,404 | |
| Accrued restructuring | 3,550 | 14,843 | |
| Other current liabilities | 18,902 | 21,487 | |
| Total current liabilities | 113,937 | 130,356 | |
| LONG-TERM LIABILITIES | |||
| Long-term debt | 203,520 | 234,075 | |
| Retiree health care obligation | 54,164 | 55,057 | |
| Deferred compensation | 7,709 | 3,795 | |
| Deferred income taxes | 40,578 | 40,829 | |
| Total long-term liabilities | 305,971 | 333,756 | |
| SHAREHOLDERS' EQUITY | |||
| Common stock, $1.00 par value: | |||
| Authorized 101,000,000 shares | |||
| Issued 1999 - 24,467,544; 1998 - 24,391,072 | 24,468 | 24,391 | |
| Class A stock, $1.00 par value: | |||
| Authorized 9,450,000 shares | |||
| Issued - 4,725,000 | 4,725 | 4,725 | |
| Capital in excess of par value | 35,669 | 33,957 | |
| Accumulated other comprehensive losses | (417) | (1,161) | |
| Retained earnings | 525,835 | 479,679 | |
| Treasury stock at cost: | |||
| 1999 - 1,793,395 shares; 1998 - 701,152 shares | (46,540) | (19,614) | |
| Common stock held in grantor trust, at cost: | |||
| 1999 - 59,697 shares; 1998 - 26,284 shares | (2,009) | (1,012) | |
| Total shareholders' equity | 541,731 | 520,965 | |
| Total liabilities and shareholders' equity | $ 961,639 | $ 985,077 | |
| See accompanying notes. | |||
| THE STANDARD REGISTER COMPANY | |||||
| STATEMENT OF INCOME | |||||
| (Dollars in thousands, except per share amounts) | |||||
| 52 Weeks Ended | 53 Weeks Ended | 52 Weeks Ended | |||
| January 2 | January 3 | December 28 | |||
| 2000 | 1999 | 1997 | |||
| REVENUE | $ 1,326,681 | $ 1,299,615 | $ 867,842 | ||
| COST AND EXPENSE | |||||
| Cost of products sold | 819,173 | 803,588 | 505,545 | ||
| Engineering and research | 8,875 | 9,012 | 8,626 | ||
| Selling and administrative | 344,388 | 332,252 | 220,265 | ||
| Depreciation and amortization | 50,858 | 45,027 | 27,446 | ||
| Interest | 13,850 | 14,044 | 288 | ||
| Total cost and expense | 1,237,144 | 1,203,923 | 762,170 | ||
| INCOME FROM CONTINUING | |||||
| OPERATIONS BEFORE INCOME TAXES | 89,537 | 95,692 | 105,672 | ||
| PROVISION FOR INCOME TAXES | 33,797 | 38,679 | 41,949 | ||
| INCOME FROM CONTINUING | |||||
| OPERATIONS | 55,740 | 57,013 | 63,723 | ||
| DISCONTINUED OPERATIONS | |||||
| (Loss) income from operations, net of applicable | |||||
| income taxes of ($350), $1,743 and $2,087 | (509) | 2,570 | 3,171 | ||
| Gain on sale, net of applicable income | |||||
| taxes of $10,568 | 15,670 | - | - | ||
| NET INCOME | $ 70,901 | $ 59,583 | $ 66,894 | ||
| BASIC EARNINGS PER SHARE | |||||
| Income from continuing operations | $1.99 | $2.01 | $2.24 | ||
| (Loss) income from discontinued operations | (0.02) | 0.09 | 0.11 | ||
| Gain on sale of discontinued operations | 0.56 | - | - | ||
| Net income | $2.53 | $2.10 | $2.35 | ||
| DILUTED EARNINGS PER SHARE | |||||
| Income from continuing operations | $1.98 | $1.99 | $2.22 | ||
| (Loss) income from discontinued operations | (0.02) | 0.09 | 0.11 | ||
| Gain on sale of discontinued operations | 0.56 | - | - | ||
| Net income | $2.52 | $2.08 | $2.33 | ||
| See accompanying notes. | |||||
| THE STANDARD REGISTER COMPANY | |||||
| STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME | |||||
| (Dollars in thousands) | |||||
| 52 Weeks
Ended |
53 Weeks
Ended |
52 Weeks Ended | |||
| January 2 | January 3 | December 28 | |||
| 2000 | 1999 | 1997 | |||
| COMMON STOCK | |||||
| Beginning balance | $ 24,391 | $ 24,308 | $ 24,204 | ||
| Add shares issued under: | |||||
| Management Incentive Plan | - | 6 | 50 | ||
| Dividend Reinvestment Plan | 36 | 23 | 22 | ||
| Stock Option Plan | 41 | 54 | 32 | ||
| Ending balance | 24,468 | 24,391 | 24,308 | ||
| CLASS A STOCK | 4,725 | 4,725 | 4,725 | ||
| CAPITAL IN EXCESS OF PAR VALUE | |||||
| Beginning balance | 33,957 | 31,599 | 28,705 | ||
| Add excess of market over par | |||||
| value of shares issued under: | |||||
| Management Incentive Plan | 27 | 195 | 1,562 | ||
| Dividend Reinvestment Plan | 841 | 739 | 709 | ||
| Stock Option Plan | 783 | 1,141 | 623 | ||
| Fund grantor trust with treasury shares | 61 | 283 | - | ||
| Ending balance | 35,669 | 33,957 | 31,599 | ||
| ACCUMULATED OTHER COMPREHENSIVE LOSSES | |||||
| Beginning balance | (1,161) | - | - | ||
| Minimum pension liability | 744 | (1,161) | - | ||
| Ending balance | (417) | (1,161) | - | ||
| RETAINED EARNINGS | |||||
| Beginning balance | 479,679 | 444,259 | 400,387 | ||
| Add net income | 70,901 | 59,583 | 66,894 | ||
| Less dividends declared (1999 - $.89 per share; | |||||
| 1998 - $.85 per share; 1997 - $.81 per share) | (24,745) | (24,163) | (23,022) | ||
| Ending balance | 525,835 | 479,679 | 444,259 | ||
| TREASURY STOCK AT COST | |||||
| Beginning balance | (19,614) | (16,956) | (4,775) | ||
| Cost of common shares purchased | (28,210) | (3,387) | (12,181) | ||
| Shares issued under Management Incentive Plan | 404 | - | - | ||
| Fund grantor trust with treasury shares | 880 | 729 | - | ||
| Ending balance | (46,540) | (19,614) | (16,956) | ||
| COMMON STOCK HELD IN GRANTOR TRUST | |||||
| Beginning balance | (1,012) | - | - | ||
| Shares issued under Dividend Reinvestment Plan | (56) | - | - | ||
| Fund grantor trust with treasury shares | (941) | (1,012) | - | ||
| Ending balance | (2,009) | (1,012) | - | ||
| Total shareholders' equity | $ 541,731 | $ 520,965 | $ 487,935 | ||
| COMPREHENSIVE INCOME | |||||
| Net income | $ 70,901 | $ 59,583 | $ 66,894 | ||
| Minimum pension liability, net of $(501) and $782 | |||||
| deferred income tax (expense) benefit | 744 | (1,161) | - | ||
| Total comprehensive income | $ 71,645 | $ 58,422 | $ 66,894 | ||
| See accompanying notes. | |||||
| THE STANDARD REGISTER COMPANY | |||||
| STATEMENT OF CASH FLOWS | |||||
| (Dollars in thousands) | |||||
| 52 Weeks Ended | 53 Weeks Ended | 52 Weeks Ended | |||
| January 2 | January 3 | December 28 | |||
| 2000 | 1999 | 1997 | |||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||
| Net income | $ 70,901 | $ 59,583 | $ 66,894 | ||
| Add (deduct) items not affecting cash: | |||||
| Depreciation and amortization | 53,042 | 54,112 | 36,646 | ||
| Gain on sale of discontinued operations | (26,238) | - | - | ||
| Loss on sale of assets | 603 | 19 | 346 | ||
| (Gain) loss from investments | - | (7) | 1,558 | ||
| Deferred income taxes | 5,094 | 2,494 | 3,938 | ||
| Increase (decrease) in cash arising from changes | |||||
| in assets and liabilities, net of acquisition/disposition: | |||||
| Trading securities | 6,150 | 8,771 | (15,000) | ||
| Accounts receivable | 10,246 | 22,523 | (12,320) | ||
| Inventories | 2,730 | (38,194) | 606 | ||
| Other assets | (17,220) | (2,243) | (6,309) | ||
| Accounts payable and accrued expenses | (6,197) | (50,827) | 5,653 | ||
| Income taxes payable | (2,783) | 261 | (1,469) | ||
| Customer deposits | (2,875) | (17,865) | 16,818 | ||
| Deferred income | (512) | 1,182 | (52) | ||
| Other liabilities | 3,019 | 3,146 | 1,136 | ||
| Net adjustments | 25,059 | (16,628) | 31,551 | ||
| Net cash provided by operating activities | 95,960 | 42,955 | 98,445 | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||
| Additions to plant and equipment | (67,567) | (65,733) | (61,287) | ||
| Proceeds from sale of discontinued operations | 97,937 | - | - | ||
| Proceeds from sale of plant and equipment | 3,205 | 5,657 | 432 | ||
| Proceeds from sale of held-to-maturity securities | - | 760 | 455 | ||
| Acquisition | - | (245,000) | - | ||
| Additions to other investments | (58) | - | (3,064) | ||
| Net cash provided by (used in) investing activities | 33,517 | (304,316) | (63,464) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||
| Principal payments on long-term debt | (31,080) | (1,294) | - | ||
| Proceeds from issuance of long-term debt | - | 230,000 | - | ||
| Proceeds from issuance of common stock | 1,672 | 2,158 | 2,998 | ||
| Purchase of treasury stock | (28,210) | (3,387) | (12,181) | ||
| Dividends paid | (24,694) | (23,880) | (22,792) | ||
| Net cash (used in) provided by financing activities | (82,312) | 203,597 | (31,975) | ||
| NET INCREASE (DECREASE) IN CASH AND | |||||
| CASH EQUIVALENTS | 47,165 | (57,764) | 3,006 | ||
| Cash and cash equivalents at beginning of year | 9,792 | 67,556 | 64,550 | ||
| CASH AND CASH EQUIVALENTS | |||||
| AT END OF YEAR | $ 56,957 | $ 9,792 | $ 67,556 | ||
| See accompanying notes. | |||||
| SUPPLEMENTAL CASH FLOW DISCLOSURES | |||||
| Cash paid during the year for: | |||||
| Interest | $ 12,456 | $ 14,453 | $ 141 | ||
| Income taxes | 41,202 | 37,667 | 41,317 | ||
| Details of acquisiton: | |||||
| Working capital | $ - | $ 56,841 | $ - | ||
| 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 | $ - | ||
| See accompanying notes. |
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Standard Register Company is a leading domestic supplier of business forms, pressure sensitive labels, business equipment, 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.
Fiscal Year - The Company's fiscal year is the 52 or 53-week period ending the Sunday nearest to December 31. Fiscal years 1999, 1998, and 1997 ended on January 2, 2000, January 3, 1999, and December 28, 1997, respectively. Fiscal years 1999 and 1997 each included 52 weeks; fiscal year 1998 included 53 weeks.
Segment Reporting - During 1998, the Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". Two operating segments were identified for 1998 financial reporting. Due to the sale of the Communicolor operation (Note 2) in the first quarter of 1999 and management restructuring occurring in the second quarter of 1999, the Company now has only one reportable segment for 1999 financial reporting.
Cash Equivalents - The Company classifies as cash equivalents all highly liquid investments with original maturities of three months or less. The carrying value of cash equivalents approximates fair value due to the short-term maturity of these instruments.
Trading Securities - 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.
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.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation - For financial reporting purposes, depreciation is computed by the straight-line method over the estimated useful lives of the depreciable assets. Depreciation expense from continuing operations was $46,847 in 1999, $41,016 in 1998, and $27,444 in 1997. Estimated asset lives are:
| Classification | Years |
| Buildings and improvements | 10-40 |
| Machinery and equipment | 5-15 |
| Office furniture and equipment | 5-15 |
Goodwill - Goodwill represents the excess of the cost of businesses acquired over the fair market value of identifiable net assets at the dates of acquisition. Goodwill is being amortized on a straight-line basis over 15 years. The Company reviews the recoverability of goodwill whenever events or changes in circumstances indicate potential impairment of the carrying value. In management's opinion, no material impairment exists at January 2, 2000. Amortized goodwill expense from continuing operations was $4,011 in 1999 and 1998, and $2 in 1997.
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.
Income Taxes - The Company accounts for income taxes using the asset and liability method. Under this 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.
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.
New Accounting Standard - During 1999, the Company adopted Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that certain costs associated with developing or obtaining internal use software be capitalized and then amortized over the useful life. The adoption of this new standard has no material effect on the Company's financial statements.
NOTE 2 - ACQUISITION AND DISCONTINUED OPERATIONS
On April 1, 1999, the Company sold substantially all of the business and operating assets of its Communicolor promotional direct mail operation for approximately $97,900 in cash. The transaction resulted in a gain of $15,670, net of income taxes of $10,568. This business has been accounted for as a discontinued operation and the operating results of Communicolor have been excluded from continuing operations and reported as a separate line on the statement of income for all years presented. Revenues reclassified to discontinued operations were $97,254 and $97,832 in fiscal years 1998 and 1997, respectively.
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 $3,550 remains unpaid and is recorded as accrued restructuring liability at January 2, 2000 ($14,843 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.
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 $36,441 higher at January 2, 2000 and $31,530 higher at January 3, 1999.
Inventories at the respective year-ends are as follows:
| January 2 | January 3 | ||
| 2000 | 1999 | ||
| Finished products | $101,717 | $104,982 | |
| Jobs in process | 18,321 | 18,075 | |
| Materials and supplies | 11,716 | 15,319 | |
| Total | $131,754 | $138,376 |
During 1999, inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 1999 purchases, the effect of which decreased cost of products sold by approximately $635 and increased net income by approximately $380 or $.01 per share.
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
| January 2 | January 3 | ||
| 2000 | 1999 | ||
| Revolving credit facility | $200,000 | $230,000 | |
| Industrial development revenue bonds | 3,520 | 4,600 | |
| Total | 203,520 | 234,600 | |
| Less current portion | - | 525 | |
| Long-term portion | $203,520 | $234,075 |
In December 1997, the Company entered into a $300,000 unsecured revolving credit line agreement maturing in December 2002. 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 converted $200,000 of its floating rate debt to an all-in fixed rate of 6.09%. On April 27, 1999, the Company repaid $30,000 of the revolving credit debt.
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 fiscal 1999 are as follows: 2001 - $590; 2002 - $630; and 2003 - $2,300.
NOTE 5 - INCOME TAXES
The provision for income taxes, relating to continuing operations, consists of the following:
| 1999 | 1998 | 1997 | |||
| Current | |||||
| Federal | $16,067 | $28,767 | $30,721 | ||
| State and local | 2,857 | 6,657 | 6,684 | ||
| 18,924 | 35,424 | 37,405 | |||
| Deferred | 14,873 | 3,255 | 4,544 | ||
| Total | $33,797 | $38,679 | $41,949 |
The significant components of the deferred tax expense (benefit) are as follows:
| 1999 | 1998 | 1997 | |||
| Depreciation | $4,114 | $2,609 | $2,963 | ||
| Pension | 5,775 | 1,961 | 2,039 | ||
| Inventories | 459 | (230) | 110 | ||
| Compensation and benefits | (483) | (2,107) | (431) | ||
| Allowance for doubtful accounts | 4,236 | 1,192 | 312 | ||
| Retiree health care benefits | 359 | (132) | (457) | ||
| Other | 413 | (38) | 8 | ||
| Total | $14,873 | $3,255 | $4,544 |
NOTE 5 - INCOME TAXES (CONTINUED)
The components of the current net deferred tax asset and long-term net deferred tax liability as of January 2, 2000 and January 3, 1999 are as follows:
| January 2 | January 3 | ||
| 2000 | 1999 | ||
| Deferred tax asset: | |||
| Allowance for doubtful accounts | $1,400 | $5,701 | |
| Inventories | 3,071 | 3,546 | |
| Compensation and benefits | 9,134 | 9,276 | |
| Other | 115 | 542 | |
| Total current | $13,720 | $19,065 | |
| Deferred tax liability: | |||
| Depreciation | $26,235 | $32,120 | |
| Pension | 36,152 | 30,879 | |
| Retiree health care benefits | (21,809) | (22,170) | |
| Total long-term | $40,578 | $40,829 |
The reconciliation of the statutory federal income tax rate and the effective tax rate follows:
| 1999 | 1998 | 1997 | |||
| Statutory federal income tax rate | 35.0% | 35.0% | 35.0% | ||
| State and local income taxes | 5.3 | 5.3 | 5.3 | ||
| Utilization of capital loss carryover | (2.3) | - | - | ||
| Other | (0.3) | 0.1 | (0.6) | ||
| Effective tax rate | 37.7% | 40.4% | 39.7% |
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 22,614,452 shares of Common outstanding has one vote, while each of the 4,725,000 outstanding 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.
During 1999, the shareholders approved an amendment to the Articles of Incorporation that doubled the authorized number of Common shares and Class A shares from 50,500,000 to 101,000,000 and 4,725,000 to 9,450,000, respectively. Par value remains at $1.00 per share.
The Company repurchased Common stock shares for treasury as follows: 1999 - 1,137,901 shares at average cost of $24.79; 1998 - 112,363 shares at average cost of $30.14; and 1997 - 375,587 shares at average cost of $32.43.
NOTE 7 - COMMON STOCK HELD IN GRANTOR TRUST
During 1998, the Company established a grantor trust ("Trust") to fund the Company's obligations under a deferred compensation plan for eligible participants. The benefits payable from the Trust are included in the "Deferred compensation" liability shown on the Company's balance sheet. Although the Trust is funded with both cash and shares of the Company's common stock, 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. Company shares held by the Trust were 59,697 and 26,284 at January 2, 2000 and January 3, 1999, respectively.
Company shares funding the Trust are recorded as "Common stock held in grantor trust" at their fair market value as of the transfer date. "Capital in excess of par value" is increased for any differences between the cost of the shares and their recorded 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.
NOTE 8 - EARNINGS PER SHARE
The number of shares outstanding for calculation of earnings per share (EPS) is as follows:
| (Shares in thousands) | 1999 | 1998 | 1997 | ||
| Weighted average shares outstanding - basic | 28,051 | 28,426 | 28,498 | ||
| Dilutive effect of stock options | 96 | 175 | 203 | ||
| Weighted average shares outstanding - diluted | 28,147 | 28,601 | 28,701 |
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. Outstanding options to purchase 1,273 and 842 shares during fiscal years 1999 and 1998, respectively, were not included in the computation of EPS because the exercise prices of the options were greater than the average market price of the shares; therefore, the effect would be anti-dilutive.
NOTE 9 - STOCK OPTION PLAN
The Company has a plan under which stock options may be granted to officers and key employees for the purchase of a maximum of 3,000,000 shares of common stock. 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:
| 1999 | 1998 | 1997 | ||||
| Net income | As reported | $70,901 | $59,583 | $66,894 | ||
| Pro forma | 67,852 | 57,364 | 65,101 | |||
| Basic earnings per share | As reported | $2.53 | $2.10 | $2.35 | ||
| Pro forma | 2.42 | 2.02 | 2.28 | |||
| Diluted earnings per share | As reported | $2.52 | $2.08 | $2.33 | ||
| Pro forma | 2.41 | 2.00 | 2.27 |
The weighted average fair values of options granted in fiscal years 1999, 1998, and 1997 were estimated at $7.82, $9.75, and $10.58 per share, respectively, using the Black-Scholes option-pricing model based on the following assumptions:
| 1999 | 1998 | 1997 | |||
| Risk-free interest rate | 5.5% | 4.7% and 5.4% | 5.7% | ||
| Dividend yield | 2.8% | 2.0% | 2.0% | ||
| Expected life | 5 years | 5 years | 5 years | ||
| Expected volatility | 29.5% | 29.8% | 29.7% | ||
The following summarizes stock option activity during fiscal years 1999, 1998 and 1997:
| 1999 | 1998 | 1997 |
| Weighted | Weighted | Weighted | |||||||||
| Average | Average | Average | |||||||||
| Exercise | Exercise | Exercise | |||||||||
| Shares | Price | Shares | Price | Shares | Price | ||||||
| Outstanding, beginning of year | 1,757,340 | $ 30.385 | 924,420 | $ 26.836 | 776,000 | $ 23.772 | |||||
| Granted | 18,000 | 29.049 | 979,500 | 33.217 | 227,000 | 35.313 | |||||
| Exercised | (40,950) | 20.125 | (54,180) | 22.069 | (32,580) | 20.125 | |||||
| Canceled | (169,500) | 32.363 | (92,400) | 31.478 | (46,000) | 21.728 | |||||
| Outstanding, end of year | 1,564,890 | 30.424 | 1,757,340 | 30.385 | 924,420 | 26.836 |
NOTE 9 - STOCK OPTION PLAN (CONTINUED)
Following is a summary of the status of stock options outstanding at January 2, 2000:
| Number | Number | Exercise | Remaining | |||
| Outstanding | Exercisable | Price | Term | |||
| 352,890 | 265,890 | $20.125 | 6 years | |||
| 171,000 | 155,200 | 32.375 | 7 years | |||
| 179,000 | 152,400 | 35.313 | 8 years | |||
| 632,000 | 128,000 | 34.125 | 9 years | |||
| 213,000 | 155,064 | 30.938 | 9 years | |||
| 17,000 |
- |
29.118 | 10 years |
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:
| Change in Benefit Obligation | 1999 | 1998 | ||
| Benefit obligation at beginning of year | $435,305 | $178,676 | ||
| Service cost | 11,778 | 12,413 | ||
| Interest cost | 29,587 | 29,017 | ||
| Amendments | - | 564 | ||
| Actuarial (gain) loss | (24,227) | 50,196 | ||
| Acquisition | - | 193,472 | ||
| Benefits paid | (48,612) | (29,033) | ||
| Benefit obligation at end of year | $403,831 | $435,305 |
NOTE 10 - PENSION PLANS (CONTINUED)
| Change in Plan Assets | 1999 | 1998 | ||
| Fair value of plan assets at beginning of year | $447,440 | $204,935 | ||
| Actual return on plan assets | 78,795 | 3,739 | ||
| Participants' contributions | 2,331 | 2,122 | ||
| Employer contributions | 4,992 | 3,646 | ||
| Acquisition | - | 262,031 | ||
| Benefits paid | (48,612) | (29,033) | ||
| Fair value of plan assets at end of year | $484,946 | $447,440 | ||
| Funded status | $81,115 | $12,135 | ||
| Unrecognized net actuarial loss | 728 | 54,253 | ||
| Unrecognized prior service cost | 7,942 | 10,300 | ||
| Minimum pension liability | (1,674) | (3,150) | ||
| Prepaid pension expense shown in balance sheet | $88,111 | $73,538 | ||
| Minimum pension liability: | ||||
| Intangible asset | $976 | $1,207 | ||
| Deferred income tax benefit | 281 | 782 | ||
| Accumulated other comprehensive losses | 417 | 1,161 | ||
| Total | $1,674 | $3,150 |
Net periodic benefit (income) cost includes the following components:
| 1999 | 1998 | 1997 | |||
| Service cost of benefits earned | $11,778 | $10,291 | $6,476 | ||
| Interest cost on projected benefit obligation | 29,587 | 29,017 | 13,265 | ||
| Expected return on plan assets | (51,987) | (41,265) | (15,131) | ||
| Amortization of prior service costs | 2,358 | 2,322 | 1,950 | ||
| Amortization of transition asset | - | (120) | (120) | ||
| Amortization of net loss from prior periods | 160 | 238 | 117 | ||
| Cost of early retirement window | - | 237 | 1,118 | ||
| Net periodic benefit (income) cost | $(8,104) | $720 | $7,675 |
The weighted average discount rates used in determining the actuarial present value of the projected benefit obligation were 7.5 percent for 1999, 7.0 percent for 1998 and 8.5 percent for 1997. The rate of increase for future compensation levels used in determining the obligation was 5.0 percent for 1999, 1998 and 1997. The expected long-term rate of return on plan assets in 1999, 1998 and 1997 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 $18,406, $22,099, and $9,470 at the respective 1999, 1998 and 1997 year ends. The related accumulated benefit obligations were $14,857, $16,947, and $5,172 at the same respective year ends.
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:
| Change in Accumulated Postretirement Benefit Obligation | 1999 | 1998 | ||
| Beginning balance | $53,466 | $25,597 | ||
| Service cost | - | - | ||
| Interest cost | 3,587 | 4,077 | ||
| Actuarial (gain) loss | (2,929) | 1,602 | ||
| Acquisition | - | 25,951 | ||
| Net retiree benefits paid | (4,240) | (3,761) | ||
| Ending balance | $49,884 | $53,466 | ||
| Plan assets | - | - | ||
| Funded status | $49,884 | $53,466 | ||
| Unrecognized net actuarial gain | 4,280 | 1,591 | ||
| Retiree health care obligation shown in balance sheet | $54,164 | $55,057 |
The components of postretirement benefit cost are as follows:
| 1999 | 1998 | 1997 | ||||||
| Service cost | $ | - | $ | - | $ | - | ||
| Interest cost | 3,587 | 4,077 | 2,401 | |||||
| Amortization of net gain from prior periods | (240) | (48) | - | |||||
| Net postretirement benefit cost | $ | 3,347 | $ | 4,029 | $ | 2,401 |
The funding policy is to pay claims as they occur. Payments for postretirement health benefits, net of retiree contributions, amounted to $4,240, $3,761 and $1,265 in 1999, 1998 and 1997, respectively.
The accumulated benefit obligation was determined using the unit credit method and assumed discount rates of 7.5 percent for 1999, 7.0 percent for 1998 and 8.5 percent for 1997. The assumed current health care cost trend rate is 9.0 percent in 1999 and gradually decreases to 5.0 percent in the year 2007.
A one percent increase in the assumed health care cost trend rate would result in a $375 increase in the service and interest components of expense for 1999 and a $4,618 increase in the postretirement benefit obligation at January 2, 2000. Similarly, a one percent decrease would result in a $332 decrease in the service and interest components of 1999 expense and a $3,928 decrease in the postretirement benefit obligation at January 2, 2000.
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
| January 2, 2000 | January 3, 1999 | ||||||
| Fair | Carrying | Fair | Carrying | ||||
| Value | Amount | Value | Amount | ||||
| Assets | |||||||
| Cash and equivalents | $ 56,957 | $ 56,957 | $ 9,792 | $ 9,792 | |||
| Trading securities | 380 | 380 | 6,530 | 6,530 | |||
| Liabilities | |||||||
| Long-term debt | $ 202,328 | $ 203,520 | $ 237,083 | $ 234,600 | |||
The carrying amount of cash equivalents approximates 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 $13,793 at January 2, 2000. Also, the Company has purchase commitments for equipment for resale of $3,809 at January 2, 2000. 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 $46,223 in 1999, $46,838 in 1998, and $25,450 in 1997.
Rental commitments under existing leases at January 2, 2000, are:
| Computer and | |||||||||
| Real | Sales | Transportation | Other | ||||||
| Estate | Offices | Equipment | Equipment | Total | |||||
| 2000 | $ 16,631 | $ 10,043 | $ 322 | $ 7,005 | $ 34,001 | ||||
| 2001 | 11,259 | 8,139 | 253 | 4,967 | 24,618 | ||||
| 2002 | 6,038 | 5,904 | 227 | 3,105 | 15,274 | ||||
| 2003 | 2,392 | 3,254 | 209 | 2,334 | 8,189 | ||||
| 2004 | 1,516 | 1,286 | 209 | 1,405 | 4,416 | ||||
| Later years | 54 | 702 | 264 | 17 | 1,037 |
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.
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data follow:
| (Dollars in thousands, except per | Quarters Ended |
| share amounts) | April 4 | July 4 | October 3 | January 2 | |||
| 1999 | 1999 | 1999 | 2000 | ||||
| Revenue | $ 326,986 | $ 335,637 | $ 325,900 | $ 338,158 | |||
| Gross margin* | 128,095 | 130,158 | 124,241 | 125,014 | |||
| Income from continuing operations | 13,704 | 14,779 | 14,939 | 12,318 | |||
| Income from discontinued operations | 13,250 | 1,116 | - | 795 | |||
| Net income | 26,954 | 15,895 | 14,939 | 13,113 | |||
| Earnings per share - basic: | |||||||
| Income from continuing operations | .48 | .53 | .53 | .44 | |||
| Income from discontinued operations | .47 | .04 | - | .03 | |||
| Net income | .95 | .57 | .53 | .47 | |||
| Earnings per share - diluted: | |||||||
| Income from continuing operations | .48 | .52 | .53 | .44 | |||
| Income from discontinued operations | .46 | .04 | - | .03 | |||
| Net income | .94 | .56 | .53 | .47 | |||
| Quarters Ended |
| March 29 | June 28 | September 27 | January 3 | ||||
| 1998 | 1998 | 1998 | 1999 | ||||
| Revenue | $320,089 | $309,005 | $318,322 | $352,199 | |||
| Gross margin* | 116,046 | 116,723 | 123,598 | 139,660 | |||
| Income from continuing operations | 9,624 | 12,035 | 16,210 | 19,144 | |||
| Income from discontinued operations | 67 | 333 | 1,007 | 1,163 | |||
| Net income | 9,691 | 12,368 | 17,217 | 20,307 | |||
| Earnings per share - basic: | |||||||
| Income from continuing operations | .33 | .43 | .57 | .67 | |||
| Income from discontinued operations | .01 | .01 | .04 | .04 | |||
| Net income | .34 | .44 | .61 | .71 | |||
| Earnings per share - diluted: | |||||||
| Income from continuing operations | .34 | .42 | .56 | .67 | |||
| Income from discontinued operations | - | .01 | .04 | .04 | |||
| Net income | .34 | .43 | .60 | .71 | |||
| * Revenue less cost of products sold. |
SCHEDULE II
| 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 | |||||
| Year Ended January 2, 2000 | ||||||||||
| Allowance for doubtful | ||||||||||
| accounts | $ 14,158 | $ 5,762 | $ 16,443(a) | $ 3,477 | ||||||
| Inventory obsolescence | 4,342 | 2,999 | 3,892(b) | 3,449 | ||||||
| Restructuring liability | 14,843 | 11,293(d) | 3,550 | |||||||
| 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 | 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 |
(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
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, 333-57779 and 333-84483.
/S/ BATTELLE & BATTELLE LLP
BATTELLE & BATTELLE LLP
Dayton, Ohio
March 24, 2000
EX-24
P O W E R O F A T T O R N E Y
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints P. S. Redding and P. H. Granzow, and each of them, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution, and each with power to act alone, to sign and execute on behalf of the undersigned the Annual Report on Form 10-K, and any amendments thereto, of The Standard Register Company for the year ended January 2, 2000, and to perform any acts necessary to be done in order to file such report with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, and each of the undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or their or his substitutes, shall do or cause to be done by virtue hereof.
| Signature | Title | Date |
| /S/ P. H. Granzow | Chairman of the Board | February 17, 2000 |
| P. H. Granzow | ||
| /S/ P. S. Redding | President and Chief Executive | February 17, 2000 |
| P. S. Redding | Officer and Director | |
| /S/ C. J. Brown | Senior Vice President-Administration, | February 17, 2000 |
| C. J. Brown | Treasurer and Chief Financial Officer | |
| /S/ R. W. Begley, Jr. | Director | February 17, 2000 |
| R. W. Begley, Jr. | ||
| /S/ F. D. Clark, III | Director | February 17, 2000 |
| F. D. Clark, III | ||
| /S/ G. G. Keeping | Director | February 17, 2000 |
| G. G. Keeping | ||
| /S/ D. L. Rediker | Director | February 17, 2000 |
| D. L. Rediker | ||
| /S/ A. Scavullo | Director | February 17, 2000 |
| A. Scavullo | ||
| /S/ J. Q. Sherman, II | Director | February 17, 2000 |
| J. Q. Sherman, II |
Signed and acknowledged in the presence of:
| /S/ P. H. Granzow | /S/ K.A Lamme |
| P. H. Granzow, Chairman of the | K.A. Lamme, Corporate Vice President, |
| Board of Directors of The Standard | Secretary and Deputy General Counsel |
| Register Company | of 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 17, 2000.
/S/ K.A Lamme
Kathryn A. Lamme
[ Notary Seal ]
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