<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
October 31, 1994 1-6528
- -------------------------------------------- -------------------------------
For the quarterly period ended Commission file number
WALLACE COMPUTER SERVICES, INC.
----------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2515832
- ------------------------------------ --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4600 W. Roosevelt Road, Hillside, Illinois 60162
-------------------------------------------- ----------------
(Address of Principal Executive Offices) (ZIP CODE)
(312) 626-2000 22,396,386
- ------------------------------------- -------------------------------------
(Registrant's Telephone Number, (Number of Common Shares Outstanding)
Including Area Code)
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.
X Yes No
------- -------
<PAGE>
Wallace Computer Services, Inc. Page 2
FORM 10-Q
For Quarterly Period Ended October 31, 1994
Part I Financial Information
Item 1. Financial Statements
- --------------------------------------
The information furnished herein reflects all adjustments which are, in
the opinion of management, necessary to a fair statement of the results
of operations and financial position for the three months ended
October 31, 1994, subject to year-end audit by independent public
accountants. These adjustments are of a normal, recurring nature.
Wallace Computer Services, Inc. and Subsidiary
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
October 31
-----------------------------------------
%
1994 Sales 1993 Sales
------------------- -------------------
<S> <C> <C> <C> <C>
Net Sales $158,353,000 100.0 $144,510,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 101,620,000 64.2 90,635,000 62.7
Selling and administrative expenses 30,261,000 19.1 29,281,000 20.3
Provision for depreciation and
amortization 8,764,000 5.5 7,890,000 5.5
------------ ----- ------------ -----
Total costs and expenses $140,645,000 88.8 $127,806,000 88.4
------------ ----- ------------ -----
Operating Income 17,708,000 11.2 16,704,000 11.6
------------ ----- ------------ -----
Interest income (1,021,000) (0.6) (798,000) (0.6)
Interest expense 394,000 0.2 334,000 0.2
------------ ----- ------------ -----
Income before Income Taxes 18,335,000 11.6 17,168,000 11.9
Provision for Income Taxes 6,692,000 4.2 6,180,000 4.3
------------ ----- ------------ -----
Net Income before Accounting Change $11,643,000 7.4 $10,988,000 7.6
Accounting Change, net of tax (Note 3) 0 0.0 663,000 0.5
------------ ----- ------------ -----
Net Income after Accounting Change $11,643,000 7.4 $11,651,000 8.1
============ ===== ============ =====
Net Income per Share $0.52 $0.53
===== =====
Average Common Shares Outstanding 22,396,000 22,065,000
============ ============
Dividends Declared Per Share $0.00 $0.00
===== =====
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 3
Consolidated Balance Sheet
<TABLE>
<CAPTION>
October 31, 1994 July 31, 1994
(Unaudited) (Audited)
---------------- -------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $22,003,000 $17,587,000
Short-term Investments (Note 3) 59,427,000 59,411,000
Accounts Receivable 110,698,000 97,160,000
Less-Allowance for Doubtful Accounts 2,019,000 1,982,000
------------ ------------
Net Receivables 108,679,000 95,178,000
Inventories (Note 1) 67,418,000 69,543,000
Advances and Prepaid Expenses 6,353,000 6,507,000
------------ ------------
Total Current Assets 263,880,000 248,226,000
------------ ------------
Property, Plant and Equipment, at Cost 443,789,000 432,244,000
Less-Reserves for Depreciation and Amortization 207,334,000 199,382,000
------------ ------------
Net Property, Plant and Equipment 236,455,000 232,862,000
------------ ------------
Intangible Assets Arising from Acquisitions 15,681,000 15,779,000
Cash Surrender Value of Life Insurance 21,842,000 21,530,000
Other Assets 21,043,000 20,195,000
------------ ------------
Total Assets $558,901,000 $538,592,000
============ ============
Liabilities and Stockholders' Equity
Current Portion of Long-Term Debt $6,006,000 $6,110,000
Accounts Payable 30,234,000 24,009,000
Accrued Salaries, Wages and Profit Sharing 30,367,000 32,789,000
Accrued Income Taxes 5,617,000 1,886,000
------------ ------------
Total Current Liabilities 72,224,000 64,794,000
------------ ------------
Long-Term Debt 23,500,000 23,500,000
Deferred Income Taxes 22,702,000 22,183,000
Deferred Compensation and Retirement Benefits 19,237,000 17,976,000
Stockholders' Equity
Common Stock (Note 2)
Outstanding-22,396,386 shares at October 31,
1994 and 22,393,353 shares at July 31, 1994 22,396,000 22,393,000
Additional Capital 38,588,000 38,553,000
Retained Earnings 360,835,000 349,193,000
Unrealized Loss on Securities (Note 3) (581,000) 0
------------ ------------
Total Stockholders' Equity 421,238,000 410,139,000
------------ ------------
Total Liabilities and Stockholders' Equity $558,901,000 $538,592,000
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 4
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
October 31
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income from operations before cumulative
effect of accounting changes $11,643,000 $10,988,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,764,000 7,890,000
Deferred taxes 519,000 (112,000)
(Gain)/loss on disposal of property 1,000 2,000
Changes in assets and liabilities
Accounts receivable (13,501,000) (3,608,000)
Inventories 2,125,000 (596,000)
Advances and prepaid expenses 154,000 (1,178,000)
Other assets (1,811,000) (431,000)
Accounts payable and other liabilities 7,386,000 1,489,000
Accrued income taxes 3,731,000 5,616,000
Deferred compensation and
retirement benefits 1,261,000 952,000
------------ ------------
Net cash provided by operating activities 20,272,000 21,012,000
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (11,634,000) (8,956,000)
Short-term investments (16,000) 3,505,000
Proceeds from disposal of property 24,000 11,000
Unrealized loss on securities (Note 3) (581,000) 0
------------ ------------
Net cash used in investing activities (12,207,000) (5,440,000)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of treasury stock 38,000 110,000
Cash dividends paid (3,583,000) (3,199,000)
Amounts paid on long-term debt (104,000) (98,000)
------------ ------------
Net cash used in financing activities (3,649,000) (3,187,000)
------------ ------------
Net changes in cash and cash equivalents 4,416,000 12,385,000
Cash and cash equivalents at beginning of year 17,587,000 7,107,000
------------ ------------
Cash and cash equivalents at October 31 $22,003,000 $19,492,000
============ ============
Supplemental Disclosure:
Interest paid (net of interest capitalized) $ 62,000 $ 24,000
Income taxes paid (net of refunds received) 2,548,000 639,000
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 5
Notes to Consolidated Financial Statements
October 31, 1994
(Unaudited)
Note 1 - Inventories
Inventories at October 31, 1994 and July 31, 1994 were as follows:
<TABLE>
<CAPTION>
October 31, 1994 July 31, 1994
--------------- -------------
<S> <C> <C>
Raw materials $19,230,000 $22,221,000
Work in process 500,000 1,614,000
Finished products 47,688,000 45,708,000
------------ ------------
$67,418,000 $69,543,000
============ ============
</TABLE>
Certain inventories are stated on the last-in, first-out (LIFO) basis
for their labor and material content, and other inventories are stated
on the first-in, first-out (FIFO) basis.
Because the inventory determination under the LIFO method can only be
made at the end of each fiscal year based on the inventory levels and
costs at that time, interim period LIFO determinations must necessarily
be based upon management's estimates of expected year-end inventory
levels and costs.
Note 2 - Stock Options
As of October 31, 1994, options to purchase 436,759 shares of common
stock were outstanding and 740,329 shares of common stock were available
for future grants under the Company's Stock Option and Employee Stock
Purchase Plans. At the annual meeting of stockholders held on
November 9, 1994, the number of shares of common stock available for
future grants under the Company's Stock Option and Employee Stock
Purchase Plans was increased by 500,000.
The Company has authorized 50,000,000 shares of common stock and has
issued 22,796,176. Of these shares, 986,780 have been repurchased and
586,990 have been reissued under the Employee Stock Purchase Plan and
through the exercise of stock options. The number of shares held in
treasury at October 31, 1994 is 399,790. At July 31, 1994, 22,796,176
shares had been issued of which 986,780 had been repurchased and 583,957
have been reissued. The number of shares held in treasury at
July 31, 1994 was 402,823.
Note 3 - Changes in Accounting
In the first quarter ended October 31, 1993, the Company adopted
Statement of Financial Accounting Standards No. 106 (SFAS 106),
"Employers' Accounting for Post-Retirement Benefits Other than
Pensions", and Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes."
Effective August 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires
securities that are available-for-sale be carried at fair value, with
changes in net unrealized gains and losses recorded as a separate
component of shareholders' equity. Previously, fixed income securities
classified as available-for-sale were carried at the lower of amortized
cost or fair value, determined in the aggregate. The adoption of this
statement had no impact on net
<PAGE>
Wallace Computer Services, Inc. Page 6
FORM 10-Q
For Quarterly Period Ended October 31, 1994
Note 3 - Accounting Change (continued)
income, but decreased shareholders' equity by $581,000 at
October 31, 1994 (net of tax).
The amortized cost and market value of investments as of adoption on
August 1, 1994, and as of October 31, 1994 were as follows:
<TABLE>
August 1, 1994 Amortized Unrealized Holding Market
-------------- Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-Sale
State, Municipal & Other Govt Debt $22,629,000 $42,000 $64,000 $22,607,000
Corporate Debt 1,992,000 7,000 0 1,999,000
Equity 14,322,000 86,000 795,000 13,613,000
Other 68,000 0 0 68,000
Held-to-Maturity
State, Municipal & Other Govt Debt 20,400,000 0 0 20,400,000
----------- ----------- ----------- -----------
Total Short-term Investments $59,411,000 $135,000 $859,000 $58,687,000
=========== =========== =========== ===========
Long-term Available-for-Sale
Equity $1,992,000 $0 $0 $1,992,000
=========== =========== =========== ===========
</TABLE>
<TABLE>
October 31, 1994 Amortized Unrealized Holding Market
--------------------- Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-Sale
State, Municipal & Other Govt Debt $23,764,000 $46,000 $159,000 $23,651,000
Equity 13,732,000 77,000 933,000 12,876,000
Held-to-Maturity
State, Municipal & Other Govt Debt 22,900,000 0 0 22,900,000
----------- ----------- ----------- -----------
Total Short-term Investments $60,396,000 $123,000 $1,092,000 $59,427,000
=========== =========== =========== ===========
Long-term Available-for-Sale
Equity $1,992,000 $0 $0 $1,992,000
=========== =========== =========== ===========
</TABLE>
Short-term investments were carried at amortized cost at July 31, 1994.
Maturities for all debt securities classified as short-term are less than
one year. The long-term investment is included in the 'Other Assets'
section of the balance sheet.
In the first quarter ended October 31, 1994, proceeds on the sale of
available-for-sale securities were $451,000, with gross realized losses
of $49,000. The amortized cost of these securities was based on specific
identification. No securities during the period were classified as
trading securities. The change in net unrealized loss on available-for-
sale securities from August 1 to October 31, 1994 was $147,000 (net of
tax).
There have been no sales of held-to-maturity securities other than at
their maturity date.
<PAGE>
Wallace Computer Services, Inc. Page 7
FORM 10-Q
For Quarterly Period Ended October 31, 1994
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ---------------------------------------------------------------------
Results of Operations
---------------------------
There have been no material changes in financial condition since our
preceding fiscal year which ended July 31, 1994.
For the three month period ended October 31, 1994, net sales increased
9.6% to $158,353,000. Net income before accounting changes for the first
quarter increased 6.0% to $11,643,000 or 52 cents per share, from
$10,988,000 or 50 cents per share in fiscal 1994. Pretax income
excluding accounting changes for the quarter was up by $1,167,000 or 6.8%.
Cost of goods sold represented 64.2% of sales versus 62.7% in the first
quarter of fiscal 1994. The first quarter of fiscal 1995 includes a LIFO
charge of approximately $1.3 million as a result of higher paper costs.
There was no LIFO provision made during the first quarter of fiscal 1994.
Selling and administrative expenses were 19.1% of sales versus 20.3% in
the first quarter last year.
The provision for depreciation and amortization is up 11.1% in the first
quarter from fiscal 1994. The current quarter includes the amortization
of the Wallace Manufacturing Information System of $135,000, and the
amortization of $135,000 for software acquired in conjunction with the
acquisition of software of First Electronic Forms in the second quarter
of fiscal 1994.
Interest income for the three months increased by $223,000 or 27.9% from
the same period one year ago. The increase in interest income is due to
generally higher interest rates. Interest expense, which is shown net of
capitalized interest, increased $60,000 or 18.0% between years. Increased
interest expense is attributable to higher interest rates on our variable
rate Industrial Revenue Bonds, and from the addition of an IRB for the new
Lebanon facility.
Operating income for the quarter was up $1,004,000 or 6.0%. For fiscal
1995 this represents 11.2% to sales versus 11.6% for fiscal 1994.
Liquidity and Capital Resources
-----------------------------------------
Working capital increased by $8,224,000 from July 31, 1994, with a current
ratio of 3.7 at October 31, 1994. Long-term debt consists of $23,500,000
of industrial revenue bonds at rates ranging from 3.5% to 3.85%. Long-term
debt currently represents 5.3% of total capitalization.
Capital expenditures for the first three months totaled $11,634,000. For
the full fiscal year, we project expenditures of $50.0 million, which will
be financed entirely through internally generated funds.
Stockholders' equity increased by 2.7% to $421.2 million at October 31,
1994. Since October 1992, the Company has repurchased 964,150 shares of
common stock at an average price of $25.86, or $24,932,000. Of these
shares, 488,148 were reissued to employees under the
<PAGE>
Wallace Computer Services, Inc. Page 8
FORM 10-Q
For Quarterly Period Ended October 31, 1994
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- ---------------------------------------------------------------------
Liquidity and Capital Resources (continued)
------------------------------------------------
Employee Stock Purchase Plan, and 98,842 were issued through the exercise
of stock options. The Company's authorization to repurchase additional
shares expired on July 31, 1993.
The current portion of long-term debt represents debt assumed in connection
with the acquisition of MGI Companies and Evergreen Realty. The final
payment on current debt of $2,959,000 is due in February 1995, with the
final payment on the remaining $3,047,000 due in July 1995.
Cash balances remain adequate to fund current operations. We do not
anticipate a need to borrow funds in the near future.
Current inventory levels are in-line with the inventory levels necessary
to satisfy customer demand. We anticipate having adequate sources of
supply of raw materials to meet the future requirements of our business.
Common Stock
---------------
On November 9, 1994, the Board of Directors voted to increase the
annualized dividend rate to $.74 per share, a 15.6% increase from fiscal
1994.
Other
-------
On November 29, 1994, we completed the acquisition of the assets of Lampro
Graphics, Inc. This acquisition was a cash transaction and will be
accounted for using the purchase method. The acquisition is not expected
to materially impact the Company's results for fiscal 1995.
Part II Other Information
---------------------------------
Items 1 thru 6. None
- ---------------
<PAGE>
Page 9
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended October 31, 1994
SIGNATURES
--------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALLACE COMPUTER SERVICES, INC.
December 12, 1994 /s/ TED DIMITRIOU
--------------------- -------------------------------------
Date Ted Dimitriou
Chairman of the Board
December 12, 1994 /s/ ROBERT CRONIN
--------------------- -------------------------------------
Date Robert Cronin
President and Chief Executive Officer
December 12, 1994 /s/ MICHAEL J. HALLORAN
--------------------- -------------------------------------
Date Michael J. Halloran
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> OCT-31-1994
<CASH> 22,003
<SECURITIES> 59,427
<RECEIVABLES> 110,698
<ALLOWANCES> (2,019)
<INVENTORY> 67,418
<CURRENT-ASSETS> 263,880
<PP&E> 443,789
<DEPRECIATION> (207,334)
<TOTAL-ASSETS> 558,901
<CURRENT-LIABILITIES> 72,224
<BONDS> 23,500
<COMMON> 22,396
0
0
<OTHER-SE> 398,842
<TOTAL-LIABILITY-AND-EQUITY> 558,901
<SALES> 158,353
<TOTAL-REVENUES> 158,353
<CGS> 101,620
<TOTAL-COSTS> 140,645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 121
<INTEREST-EXPENSE> 394
<INCOME-PRETAX> 18,335
<INCOME-TAX> 6,692
<INCOME-CONTINUING> 11,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,643
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
