By Ann Levine July 28, 2004 -- Standard Register (NYSE: SR) recently announced second quarter revenue of $226.5 million, down 2.8% on a year over year basis and was essentially even with last quarter. Net loss for the quarter was $2.6 million or $0.09 per share as compared to a net loss of $12 million or $0.42 for the same period last year. Excluding restructuring, asset impairment and amortization of pension lasses, earnings per share were $0.04 compared to last year negative $0.04. Topics of this summary: Quarter Highlights Segment Results Q & A Quarter Highlights Highlights of the quarter include continuing efforts to simplify the company through flattening current structure. Specifically in the Client Care area, positions have been eliminated and the organization has been reshaped. The company also recently eliminated four senior corporate officers. Citing progress in gaining share, the company’s share of strategic accounts has increased and validates its current strategic account approach. Standard Register has partnered with HP for current and upcoming technology needs. Significantly, Standard Register has re-signed a 3-year deal with Health Trust worth $40 million in revenues. For the remainder of the year, Standard Register expects a steady revenue performance. The company is striving to recover recent paper price increases. Additionally, the company expects to improve the cost/expense ratio by 5% in relationship to revenue. It will take corrective actions in operations and other activities that are lagging and not performing up to expectations. Segment Results The Document Label Solutions Segment reported revenues of $158 million down 3.6% on a year over year basis. The decline was due to pricing pressures even though there were some increases in units. Fulfillment reported second quarter revenues of $60 million, up ½ of 1%. Again, prices affected performance as unit numbers were up. InSystems, the subsidiary in Canada, reported revenues of $3 million, down 31% from last year reflecting continued softness in new license software sales. Revenues from all other sources were $5.5 million, a 12% increase with commercial print accounting for an 8% increase. Gross margin was $81.6 million for the quarter or 36% of revenue, down $7.5 million compared to the same period last year. The decline is due almost primarily to pricing. Pension costs were higher, primarily due to prior year’s amortization. Amortization this quarter was $ 2.2 million higher. Restructuring during the quarter amounted to a charge of $2.2 million. Q & A Pension expenses for the first half of the year were $11.4 million including qualified and nonqualified items. On an annualized basis, Standard Register expects to contribute $23 million. Last year’s expenses were roughly one half of what has been contributed so far this year. Of the $23 million in pension expenses, about $17.5 million will related to the amortization of past losses in the plan due to a weak stock market in 2001-02 and lower interest rates, essentially raising the liability and lowering the assets. The amortization will be with Standard Register for the next couple of years. Expectations are for pension expenses to increase. Standard Register is not required to make contributions to the plan for the next two years, but the company’s modeling is to fund the plan at least at the level of the benefit being earned, roughly $10 million. The third quarter is typically a slow one for Standard Register, although officials expressed optimism that the business would operate at a steady state on a net basis. Regarding costs reductions, company officials stated there is more to be done in gaining efficiencies and reducing costs. SG & A expenses have risen in relation to revenue, so that will be an area Standard Register will look at closely. Standard Register recently acquired Pen Forms which CEO and President Dennis Rediker explained would provide the technology to expand the company’s pen and paper services. The acquisition of Pen Forms provide SR with the technology that provides additional services to the product such as digital signature recognition, data validation, hand character recognition, etc. Providing guidance on future cash flow, Standard Register indicated analysts should look at second quarter actuals in modeling efforts. Absent pension, restructuring and acquisitions, the company is at least in a cash neutral position. Moving forward, improvement and productivity efforts should be taken into consideration on future cash flow. The company’s long-term strategy with the HP deal is to improve productivity and produce cost savings and cost avoidance over the next five-year. The work that was outsourced to HP is commoditized and Standard Register would not be able to do the same work at the same cost. HP brings technical knowledge, capability, scale and scope that the company does not have. Cash flow of $7.4 million is post capital expenditures and post dividends. Standard Register did raise its list prices in response to paper price increase first in April and will again in July. Specifics on how much of an increase were not disclosed during today’s call. SR has not fully recovered from the April price increases and indicated that recovery typically takes 2-3 quarters. The increase will put more pressure on margins. Additional restructuring and other changes are planned in the coming months, but the plan was not revealed as the company stated the plan is still unfolding. Strategic accounts have grown by 11%. As opposed to selling InSystems, Standard Register is looking at strategic alternatives. As Standard Register looks across the company for productivity and efficiencies, it will look at products, services, business and structures that are not producing results. InSystems will be considered in that review along with all other areas.