<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
April 30, 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 22,277,211
- - --------------------------------- -------------------------------------
(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 April 30, 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 nine months ended April 30, 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 Nine Months Ended
April 30
-----------------------------------------
% %
1994 Sales 1993 Sales
------------------- -------------------
<S> <C> <C> <C> <C>
Net Sales $439,104,000 100.0 $403,711,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 271,495,000 61.8 251,937,000 62.4
Selling and administrative expenses 89,507,000 20.4 84,350,000 20.9
Provision for depreciation and
amortization 24,423,000 5.6 22,794,000 5.6
------------ ----- ------------ -----
Total costs and expenses 385,425,000 87.8 359,081,000 88.9
------------ ----- ------------ -----
Operating Income $53,679,000 12.2 $44,630,000 11.1
------------ ----- ------------ -----
Interest income (Note 3) (2,557,000) (0.6) (3,725,000) (0.9)
Interest expense (Note 3) 928,000 0.2 1,007,000 0.2
------------ ----- ------------ -----
Income before Income Taxes 55,308,000 12.6 47,348,000 11.7
Provision for Income Taxes (Note 4) 19,911,000 4.5 16,098,000 4.0
------------ ----- ------------ -----
Net Income before Extraordinary Items $35,397,000 8.1 $31,250,000 7.7
Extraordinary Items, net of tax (Note 5) 288,000 0.1 0 0.0
------------ ----- ------------ -----
Net Income after Extraordinary Items $35,685,000 8.1 $31,250,000 7.7
------------ ----- ------------ -----
------------ ----- ------------ -----
Net Income per Share $1.61 $1.39
----- -----
----- -----
Average Common Shares Outstanding 22,152,000 22,452,000
------------ ------------
------------ ------------
Dividends Declared Per Share $0.48 $0.44
----- -----
----- -----
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. Page 3
FORM 10-Q
For Quarterly Period Ended April 30, 1994
Wallace Computer Services, Inc. and Subsidiary
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
April 30
-----------------------------------------
% %
1994 Sales 1993 Sales
------------------- -------------------
<S> <C> <C> <C> <C>
Net Sales $141,472,000 100.0 $131,755,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 85,614,000 60.5 82,304,000 62.5
Selling and administrative expenses 30,096,000 21.3 27,932,000 21.2
Provision for depreciation and
amortization 8,311,000 5.9 7,579,000 5.8
------------ ----- ------------ -----
Total costs and expenses 124,021,000 87.7 117,815,000 89.4
------------ ----- ------------ -----
Operating Income $17,451,000 12.3 $13,940,000 10.6
Interest income (Note 3) (933,000) (0.7) (998,000) (0.8)
Interest expense (Note 3) 297,000 0.2 278,000 0.2
------------ ----- ------------ -----
Income before Income Taxes 18,087,000 12.8 14,660,000 11.1
Provision for Income Taxes (Note 4) 6,511,000 4.6 4,984,000 3.8
------------ ----- ------------ -----
Net Income $11,576,000 8.2 $9,676,000 7.3
------------ ----- ------------ -----
------------ ----- ------------ -----
Net Income per Share $0.52 $0.43
----- -----
----- -----
Average Common Shares Outstanding 22,260,000 22,387,000
------------ ------------
------------ ------------
Dividends Declared Per Share $0.16 $0.15
----- -----
----- -----
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 4
Consolidated Balance Sheet
<TABLE>
<CAPTION>
April 30, 1994 July 31, 1993
(Unaudited) (Audited)
-------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $16,211,000 $7,107,000
Short-term Investments, at cost 50,743,000 39,823,000
Accounts Receivable 97,532,000 94,624,000
Less-Allowance for Doubtful Accounts 2,275,000 1,849,000
------------ ------------
Net Receivables 95,257,000 92,775,000
Inventories (Note 1) 67,188,000 68,690,000
Advances and Prepaid Expenses 6,291,000 4,709,000
------------ ------------
Total Current Assets 235,690,000 213,104,000
------------ ------------
Property, Plant and Equipment, at Cost 424,793,000 398,846,000
Less-Reserves for Depreciation and Amortization 192,088,000 170,975,000
------------ ------------
Net Property, Plant and Equipment 232,705,000 227,871,000
------------ ------------
Intangible Assets Arising from Acquisitions 15,876,000 16,168,000
Cash Surrender Value of Life Insurance 21,278,000 18,300,000
Other Assets 11,551,000 5,279,000
------------ ------------
Total Assets $517,100,000 $480,722,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Portion of Long-Term Debt $7,680,000 $749,000
Accounts Payable 22,150,000 19,992,000
Accrued Salaries, Wages and Profit Sharing 28,999,000 30,713,000
Accrued Income Taxes 4,986,000 3,713,000
------------ ------------
Total Current Liabilities 63,815,000 55,167,000
------------ ------------
Long-Term Debt 17,980,000 25,210,000
Deferred Income Taxes 19,798,000 22,238,000
Deferred Compensation and Retirement Benefits 18,003,000 9,961,000
Stockholders' Equity
Common Stock (Note 2)
Outstanding-22,277,211 shares at April 30,
1994 and 22,061,137 shares at July 31, 1993 22,277,000 22,061,000
Additional Capital 34,698,000 30,584,000
Retained Earnings 340,529,000 315,501,000
------------ ------------
Total Stockholders' Equity 397,504,000 368,146,000
------------ ------------
Total Liabilities and Stockholders' Equity $517,100,000 $480,722,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 5
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
April 30
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income from operations before cumulative
effect of accounting changes $35,397,000 $31,250,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 24,423,000 22,772,000
Deferred taxes 1,562,000 (391,000)
(Gain)/loss on disposal of property 58,000 (170,000)
Changes in assets and liabilities
Accounts receivable (2,482,000) 5,555,000
Inventories 1,502,000 (2,489,000)
Advances and prepaid expenses (1,582,000) (581,000)
Other assets (7,619,000) (4,404,000)
Accounts payable and other liabilities 78,000 (1,568,000)
Accrued income taxes 1,273,000 (608,000)
Deferred compensation and
retirement benefits 2,312,000 1,244,000
------------ ------------
Net cash provided by operating activities 54,922,000 50,610,000
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (26,191,000) (22,204,000)
Short-term investments (10,920,000) 20,469,000
Long-term investments 0 (7,893,000)
Proceeds from disposal of property 253,000 873,000
Purchase of First Electronic Forms (2,700,000) 0
------------ ------------
Net cash used in investing activities (39,558,000) (8,755,000)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 0 2,942,000
Proceeds from issuance of treasury stock 4,330,000 2,582,000
Cash dividends paid (10,291,000) (9,547,000)
Amounts paid on long-term debt (299,000) (269,000)
Purchase of treasury stock 0 (16,366,000)
------------ ------------
Net cash used in financing activities (6,260,000) (20,658,000)
------------ ------------
Net changes in cash and cash equivalents 9,104,000 21,197,000
Cash and cash equivalents at beginning of year 7,107,000 10,518,000
------------ ------------
Cash and cash equivalents at April 30 $16,211,000 $31,715,000
------------ ------------
------------ ------------
Supplemental Disclosure:
Interest paid (net of interest capitalized) $168,000 $503,000
Income taxes paid (net of refunds received) 18,023,000 17,099,000
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 6
Notes to Consolidated Financial Statements
April 30, 1994
(Unaudited)
Note 1 - Inventories
Inventories at April 30, 1994 and July 31, 1993 were as follows:
<TABLE>
<CAPTION>
April 30, 1994 July 31, 1993
-------------- --------------
<S> <C> <C>
Raw materials $18,757,000 $26,604,000
Work in process 2,522,000 3,115,000
Finished products 45,909,000 38,971,000
-------------- --------------
$67,188,000 $68,690,000
-------------- --------------
-------------- --------------
</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 April 30, 1994, options to purchase 293,476 shares of common stock
were outstanding and 1,256,836 shares of common stock were available for
future grants under the Company's Stock Option and Employee Stock
Purchase Plans.
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
467,815 have been reissued under the Employee Stock Purchase Plan and
through the exercise of stock options. The number of shares held in
treasury at April 30, 1994 is 518,965. At July 31, 1993, 22,796,176
shares had been issued of which 986,780 had been repurchased and 251,741
have been reissued. The number of shares held in treasury at July 31,
1993 was 735,039.
Note 3 - Interest Income/Interest Expense
Interest income and expense have been revised to reflect the netting
of capitalized interest against interest expense.
Note 4 - Income Taxes
As a result of the Omnibus Tax Act of 1993, the Company's fiscal 1994
effective tax rate will be higher than last year.
Note 5 - Extraordinary Items - Changes in Accounting
Post-Retirement Benefits: 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." SFAS 106 requires companies to accrue the
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 7
Notes to Consolidated Financial Statements (Continued)
April 30, 1994
(Unaudited)
estimated cost of retiree benefit payments, other than pensions, during
employees' active service periods. Previously, the cost of these
benefits, which are principally health care, were expensed when claims
were paid. The one-time charge, recognized in the first quarter, was
$5,730,000 before deferred income tax benefit ($3,667,000 after-tax).
This adjustment represents the cumulative effect of the change in
accounting for the years prior to our current fiscal year (fiscal year
ended July 31, 1994). The annual expense under the new accrual method
of accounting is $431,000, which represents $40,000 for service cost,
and $391,000 for interest cost, before deferred income tax benefit.
The liability (included in Deferred Compensation and Retirement
Benefits on the accompanying Consolidated Balance Sheet) for post-
retirement benefits, as of August 1, 1993 is:
<TABLE>
<CAPTION>
<S> <C>
Actuarial present value of benefit obligations:
Retirees $3,314,000
Fully eligible active plan participants 1,540,000
Other active plan participants 876,000
----------
$5,730,000
----------
----------
</TABLE>
For financial reporting purposes, the actuarial computations assumed a
discount rate to determine the accumulated post-retirement benefit
obligation of 7.0%, and an assumed health care cost trend rate to
measure the accumulated post-retirement benefit obligation of 12.35%
initially, declining gradually to 5.00% in 2017. However, a one
percentage point increase in the assumed health care cost trend would
increase the annual post-retirement benefit expense by $50,000 (service
cost of $7,000 and interest cost of $43,000) and the post-retirement
benefit obligation as of August 1, 1993 by $613,000.
Income Taxes: Also in the first quarter, the Company adopted Statement
of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes." SFAS 109 requires companies to apply current statutory
income tax rates to deferred assets and liabilities arising from
differences in financial reporting and tax reporting basis. The
company recognized the cumulative effect of such differences in the
current quarter resulting in noncash income of $3,955,000.
As of August 1, 1993, after having given effect to SFAS 109, the
Company had recorded the following net deferred tax liabilities:
<TABLE>
<CAPTION>
Tax Effect
<S> <C>
Deferred tax liabilities $36,174,000
Less: deferred tax assets 12,990,000
-----------
Net deferred tax liabilities $23,184,000
-----------
-----------
</TABLE>
The major portion of the deferred tax liabilities relates to
accelerated depreciation of $29,478,000. The major types of deferred
tax assets relate to the following items: deferred compensation of
$2,651,000, post-retirement benefits of $2,259,000, and inventory
capitalization of $2,358,000.
<PAGE>
Wallace Computer Services, Inc. Page 8
FORM 10-Q
For Quarterly Period Ended April 30, 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, 1993.
For the three month period ended April 30, 1994, net sales increased
7.4% to $141,472,000. Net income for the third quarter increased 19.6%
to $11,576,000 or 52 cents per share, from $9,676,000 or 43 cents per
share in fiscal 1993. Pretax income for the quarter was up by
$3,427,000 or 23.4%.
For the nine month period ended April 30, 1994, net sales increased 8.8%
to $439,104,000. Net income for the nine month period increased 14.2%
to $35,685,000 or $1.61 per share, from $31,250,000 or $1.39 per share
in fiscal 1993. Pretax income for the nine months was up by $7,960,000
or 16.8%.
Cost of goods sold represented 60.5% of sales versus 62.5% in the third
quarter of fiscal 1993. Cost of goods sold for the nine months was 61.8%
in fiscal 1994 versus 62.4% in fiscal 1993.
Selling and administrative expenses are flat between years, principally
due to fewer salesreps in 1994 versus 1993. The Company intends to add
salesreps during the remainder of fiscal 1994.
The provision for depreciation and amortization is up by 9.7% in the
third quarter from fiscal 1993. Both the second and third quarters of
fiscal 1994 included $90,000 as amortization of software acquired from
First Electronic Forms.
Interest income for the first nine months decreased by $1,168,000 or
31.4% from the same period one year ago. Interest expense, which is
shown net of capitalized interest, decreased $79,000 or 7.8% between
years. The lower interest income figure is attributable to generally
lower interest rates.
Operating income for the quarter was up $3,511,000 or 25.2%. For the
nine months, operating income was up $9,049,000 or 20.3%. For fiscal
1994 this represents 12.2% to sales versus 11.1% for fiscal 1993.
Liquidity and Capital Resources
---------------------------------
Working capital increased by $13,938,000 with a current ratio of 3.7 at
April 30, 1994. Long-term debt consists of $15,000,000 of industrial
revenue bonds at rates ranging from 3.25% to 3.35%, and $2,980,000
assumed in connection with the acquisition of the MGI Companies and
Evergreen Realty which represents a mortgage on the principal facility
of the MGI Companies. Long-term debt currently represents 4.3% of
total capitalization.
Wallace Computer Services, Inc. Page 9
FORM 10-Q
For Quarterly Period Ended April 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- - -----------------------------------------------------------------------
Capital expenditures for the first nine months totaled $26,191,000.
For the full fiscal year, we project expenditures of $32.0 million,
which will be financed entirely through internally generated funds.
Stockholders' equity increased by 8.0% to $397.5 million at April 30,
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, 382,782 were reissued to employees under the Employee Stock
Purchase Plan, and 85,033 were issued through the exercise of stock
options. The Company's authorization to repurchase additional shares
expired on July 31, 1993.
Long-term debt of $4,100,000 was reclassified to short-term during the
second quarter. This debt relates to Industrial Revenue Bonds from 1974
and 1979. It is the Company's intention to call these issues during the
fourth quarter of fiscal 1994. In the third quarter, $2,944,000 was
reclassified to short-term. This represents debt assumed in connection
with the acquisition of MGI Companies and Evergreen Realty. The final
payment is due February, 1995.
Cash balances remain adequate to fund current operations. We do not
anticipate a need to borrow funds in the near future.
Common Stock
-------------
On November 10, 1993, the Board of Directors voted to increase the
annualized dividend rate to $.64 per share, a 10.3% increase from
fiscal 1993. Quarterly dividends at the increased rate have been paid
on December 20, 1993 and March 21, 1994.
Other
------
On November 17, 1993, we completed the acquisition of the electronic
forms software and technology of First Electronic Forms of Irvine,
California. This acquisition was a cash transaction and will be
accounted for using the purchase method. The purchase agreement
includes an earn-out provision contingent upon operating results over
the next five years. The acquisition is not expected to materially
impact the Company's results for fiscal 1994.
Part II Other Information
--------------------------------
Items 1 thru 6. None
- - ---------------
<PAGE>
Page 10
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended April 30, 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.
May 25, 1994 /s/ TED DIMITRIOU
------------------ -----------------------------------------
Date Ted Dimitriou
Chairman of the Board
May 25, 1994 /s/ ROBERT CRONIN
------------------ -----------------------------------------
Date Robert Cronin
President and Chief Executive Officer
May 25, 1994 /s/ MICHAEL J. HALLORAN
------------------ -----------------------------------------
Date Michael J. Halloran
Chief Financial Officer
