Standard Register (NYSE: SR) is a leading provider of document management; label solutions; consulting and fulfillment services; and e-business solutions. Founded in 1912, the Fortune 1000 company today employs about 6,000 people throughout North America and serves companies in more than 40 countries through a network of international associate companies. The Year (and Quarter) in Review Net income in 2002 was $33.0 million compared to a net loss of $49.3 million for 2001. The 2002 two special items that reduced net income in the Fourth Quarter were: a $3.7-million write-down in the value of an equity investment and $1.1 million of after-tax income from the adjustment of a past restructuring accrual. Revenue for 2002 was $1.03 billion compared to $1.20 billion in the prior year. The decline resulted primarily from the 2001 restructuring in which low-margin business was discontinued as the year progressed. In addition, 2002 revenue was impacted by a weak economy and some residual effect of the actions taken during the restructuring. Net income for the 2002 Fourth Quarter was $4.7 million compared to $11.3 million in the period last year. Revenue in the 2002 fourth quarter was $258 million, compared to $286 million in the 2001 quarter. The fourth quarter 2002 was negatively impacted by weak economic conditions. 2003 – The New Frontier While Standard Register finished 2001 as a more focused and profitable company, the weak economy made 2002 a challenging year. The revenue shortfall didn’t allow the company’s earning potential to be realized. The Fourth Quarter saw several new multi-year contract agreements. There were wins in three of the top 50 banks in the US, the results of which will show up later in 2003. These wins were the result of a full solution offering and team-based selling. The company’s customer base is now approximately 10,000. SMARTworks is in place in 1000 organizations serving 80,000 end users. Looking ahead to 2003, Standard Register faces complicated challenges and the company will work hard to improve revenue. While SG&A is expected to remain pretty flat, there will be increased expenses in heath care and the pension fund. There will be additional investments in InSystems to move into other markets with similar needs. More resources will be added to the newly formed consulting group, PathForward™, and continued investment in the sales staff should result in more and larger contracts. The “Hot Seat” – Analysts Drill the Executives 1. The merger of Wallace & Moore will have a number of effects: - A number of customers previously served by both, are now served by only one company. - Integration of the two companies will institute change across the entire operation. - People involved will be sorting out their roles Customers may reach a decision point as a result; they may reevaluate their business relationships. If so, there are new opportunities for Standard Register. Uncertainty means opportunity. 2. Standard Register’s own M&A strategy doesn’t change. The acquisition criteria is to look for targets that will help implement the company’s strategic direction, can add manufacturing excellence to reduce costs. Standard Register is open to opportunistic acquisition, however the company doesn’t expect to acquire printing assets. While the Moore/Wallace entity will have a lot of printing assets and will try to capture print spend, Standard Register can help customers improve their own processes, and that may not require printed output. 3. In turn, Standard Register has not actively considered a sale of a subsidiary or other part of the company. The Board of Directors would drive that decision, however Dennis L. Rediker, President and CEO, would “never say never.” 4. Regarding customer contracts, there were no noteworthy contract losses in Quarter Four, and the company is seeing wins in strategic markets. There is intense competition, and customers are under cost pressure. Standard Register is focused on retention of customers with long-term contracts and expanding opportunities with that customer base. While customer retention has always been strong, there were some losses earlier in the year. 5. InSystems is doing well, and continuing to demonstrate success in the insurance industry. Standard Register is looking to move into other industries with similar needs. The quarterly report did not offer revenue or projected growth by segment, however there will be more information in the forthcoming annual report. The new business alignment will also be discussed then. 6. Standard Register – like most providers in the industry – has excess capacity. The company is operating below 80% right now. As a result capital expenditures will be similar to the last couple of years, with a slight step up in software development. 7. Head count is expected to remain the same – it’s a “zero sum game.” Staff will be added in some areas, trimmed in others, with the intent to drive productivity with the existing head count. Gail Kailing