Dear Fellow
Shareholders| Dear Fellow
Shareholders |
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The first year of the new century brought a loud wake up call for Standard Register. The revenue available to the traditional forms printing industry continues to shrink each year, driven by strong price competition coupled with a general reduction in the demand for paper forms. Consequently, revenue for 2000 dropped significantly, which led to a drop in earnings in spite of cost reductions that held the gross margin percentage roughly equal to 1999. It became clear that incremental change would not rectify the situation; dramatic action would be required. With this in mind, a comprehensive strategic review of all our businesses and assets was initiated with the intent of defining a strategic plan for the renewal and future growth of the Company. THE PLAN The four-phase Plan, which includes Restructuring, Reorganization, Performance Improvement and Growth Initiatives, aims to create Total Shareholder Return of 30% per year over the next three to four years. In addition to those short-term gains, we believe the Plan will position the Company for growth well into the future. We have included some specific performance targets in the Plan as "check points" on our progress. By fourth quarter 2001, we aim to achieve Earnings Per Share of $0.45, up 40% over the same period of 2000. And, by 2002, the target is to return to the "high water mark" set in 1997, when earnings on continuing operations reached $2.22 per share. RESTRUCTURING The enterprise-wide restructuring will initially result in a smaller, but more profitable company. We estimate that the restructuring will lead to a 15 to 20% reduction in low-margin revenue, resulting in a $1 billion company at the end of 2001. The effect of the revenue decrease will be more than offset by a $125 million reduction in annual operating costs from rationalizing assets and eliminating headcount. REORGANIZATION During the strategy review process, we determined Standard Register actually consists of a portfolio of businesses constrained inside a functionally organized company. Some of these businesses are mature, while others are just beginning to emerge. In order to most effectively manage these businesses, reorganization is in order. The new model involves a much leaner corporate center supporting four Strategic Business Units (SBUs). The four SBUs are: Document Management, Labels and Label Systems, Fulfillment Services and SMARTworks.com, Inc. Each SBU will have its own management team, investment criteria, mission and goals. The benefits of this new structure are many. First, it encourages growth and allows for development of distinctive capabilities by separating high-growth businesses from mature businesses. Second, it improves accountability by pushing P&L responsibilities closer to the customer and allowing us to see if customer satisfaction and performance goals are met. Third, it gives us the opportunity to recruit diverse leadership as we hire the presidents for the SBUs from outside the Company. Lastly, and perhaps most importantly, this model establishes the foundation for making value-creating investment decisions for growth and productivity gains. The Company plans to complete the restructuring and reorganization portions of the Plan by the end of 2001, allowing us to shift our focus to Performance Improvement and the Growth Initiatives. PERFORMANCE IMPROVEMENT In order to meet the targets we have established, the Company must achieve a more consistent level of performance and higher productivity. We will drive performance and productivity through a series of initiatives:
STRATEGIC BUSINESS UNITS ($ in thousands)
*Represents estimated annualized revenue run-rate at year-end 2001. GROWTH INITIATIVES Today, two-thirds of the Company's revenue comes from declining business segments with weak growth potential and one-third comes from business segments with strong growth potential charac-teristics. Our objective is to shift that ratio so that by 2004, more than two-thirds of the Company's revenue will come from growth business segments with significant growth potential. All four SBUs have identified specific growth initiatives that will kick off in 2001. (See pages 11-19 for more information on the SBUs and the growth initiatives.) THE NEW COMPANY 2001 will be a year of transition for Standard Register as we complete our restructuring actions and change organizational models. Once complete, the Renewal Plan will deliver a revitalized Company with increased value based on improved performance and growth. We believe the Plan is well-defined, logical and compelling. We have built in significant checkpoints to measure our progress. We will be reporting on that progress in subsequent shareholder communications. Sincerely,
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