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, 1995 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 22,534,380
- -------------------------------------- -------------------------------------
(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
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<PAGE>
Wallace Computer Services, Inc. Page 2
FORM 10-Q
For Quarterly Period Ended April 30, 1995
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, 1995,
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
-----------------------------------------
% %
1995 Sales 1994 Sales
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Net Sales $514,637,000 100.0 $439,104,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 328,070,000 63.7 271,495,000 61.8
Selling and administrative expenses 98,607,000 19.2 89,507,000 20.4
Provision for depreciation and
amortization 27,245,000 5.3 24,423,000 5.6
------------ ----- ------------ -----
Total costs and expenses $453,922,000 88.2 $385,425,000 87.8
------------ ----- ------------ -----
Operating Income 60,715,000 11.8 53,679,000 12.2
------------ ----- ------------ -----
Interest income (2,747,000) (0.5) (2,557,000) (0.6)
Interest expense 1,030,000 0.2 928,000 0.2
------------ ----- ------------ -----
Income before Income Taxes 62,432,000 12.1 55,308,000 12.6
Provision for Income Taxes 22,902,000 4.4 19,911,000 4.5
------------ ----- ------------ -----
Net Income before Accounting Change $39,530,000 7.7 $35,397,000 8.1
Accounting Change, net of tax (Note 3) 0 0.0 663,000 0.2
------------ ----- ------------ -----
Net Income after Accounting Change $39,530,000 7.7 $36,060,000 8.2
============ ===== ============ =====
Net Income per Share $1.76 $1.63
===== =====
Average Common Shares Outstanding 22,457,000 22,152,000
============ ============
Dividends Declared Per Share $0.555 $0.48
====== =====
</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, 1995
Wallace Computer Services, Inc. and Subsidiary
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
April 30
-----------------------------------------
% %
1995 Sales 1994 Sales
------------------- -------------------
<S> <C> <C> <C> <C>
Net Sales $180,119,000 100.0 $141,472,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 112,755,000 62.6 85,614,000 60.5
Selling and administrative expenses 35,433,000 19.7 30,096,000 21.3
Provision for depreciation and
amortization 9,421,000 5.2 8,311,000 5.9
------------ ----- ------------ -----
Total costs and expenses $157,609,000 87.5 $124,021,000 87.7
------------ ----- ------------ -----
Operating Income 22,510,000 12.5 17,451,000 12.3
------------ ----- ------------ -----
Interest income (763,000) (0.4) (933,000) (0.7)
Interest expense 336,000 0.2 297,000 0.2
------------ ----- ------------ -----
Income before Income Taxes 22,937,000 12.7 18,087,000 12.8
Provision for Income Taxes 8,487,000 4.7 6,511,000 4.6
------------ ----- ------------ -----
Net Income $14,450,000 8.0 $11,576,000 8.2
============ ===== ============ =====
Net Income per Share $0.64 $0.52
===== =====
Average Common Shares Outstanding 22,534,000 22,260,000
============ ============
Dividends Declared Per Share $0.185 $0.16
====== =====
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Page 4
Wallace Computer Services, Inc. and Subsidiary
Consolidated Balance Sheet
<TABLE>
<CAPTION>
April 30, 1995 July 31, 1994
(Unaudited) (Audited)
-------------- -------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $4,082,000 $17,587,000
Short-term Investments (Note 3) 33,837,000 59,411,000
Accounts Receivable 126,797,000 97,160,000
Less-Allowance for Doubtful Accounts 2,809,000 1,982,000
------------ ------------
Net Receivables 123,988,000 95,178,000
Inventories (Note 1) 83,256,000 69,543,000
Advances and Prepaid Expenses 8,571,000 6,507,000
------------ ------------
Total Current Assets 253,734,000 248,226,000
------------ ------------
Property, Plant and Equipment, at Cost 475,615,000 432,244,000
Less-Reserves for Depreciation and Amortization 222,825,000 199,382,000
------------ ------------
Net Property, Plant and Equipment 252,790,000 232,862,000
------------ ------------
Intangible Assets Arising from Acquisitions 26,742,000 15,779,000
Cash Surrender Value of Life Insurance 26,615,000 21,530,000
Other Assets 23,136,000 20,195,000
------------ ------------
Total Assets $583,017,000 $538,592,000
============ ============
Liabilities and Stockholders' Equity
Current Portion of Long-Term Debt $3,171,000 $6,110,000
Accounts Payable 36,434,000 24,009,000
Accrued Salaries, Wages and Profit Sharing 33,036,000 32,789,000
Accrued Income Taxes 901,000 1,886,000
------------ ------------
Total Current Liabilities 73,542,000 64,794,000
------------ ------------
Long-Term Debt 25,600,000 23,500,000
Deferred Income Taxes 22,612,000 22,183,000
Deferred Compensation and Retirement Benefits 20,916,000 17,976,000
Stockholders' Equity
Common Stock (Note 2)
Outstanding-22,534,380 shares at April 30, 1995
and 22,393,353 shares at July 31, 1994 22,534,000 22,393,000
Additional Capital 41,742,000 38,553,000
Retained Earnings 376,240,000 349,193,000
Unrealized Loss on Securities (Note 3) (169,000) 0
------------ ------------
Total Stockholders' Equity 440,347,000 410,139,000
------------ ------------
Total Liabilities and Stockholders' Equity $583,017,000 $538,592,000
============ ============
</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
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income from operations before cumulative
effect of accounting changes $39,530,000 $35,397,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 27,245,000 24,423,000
Deferred taxes (107,000) 1,562,000
(Gain)/loss on disposal of property 15,000 58,000
Changes in assets and liabilities
Accounts receivable (27,161,000) (2,482,000)
Inventories (12,953,000) 1,502,000
Advances and prepaid expenses (831,000) (1,582,000)
Other assets (11,527,000) (7,619,000)
Accounts payable and other liabilities 10,197,000 78,000
Accrued income taxes (985,000) 1,273,000
Deferred compensation and retirement benefits 2,940,000 2,312,000
------------ ------------
Net cash provided by operating activities 26,363,000 54,922,000
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (38,364,000) (26,191,000)
Short-term investments 25,574,000 (10,920,000)
Proceeds from disposal of property 23,000 253,000
Unrealized loss on securities (Note 3) (169,000) 0
Other capital investments including acquisitions (17,017,000) (2,700,000)
------------ ------------
Net cash used in investing activities (29,953,000) (39,558,000)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from issuance of treasury stock 3,330,000 4,330,000
Cash dividends paid (11,896,000) (10,291,000)
Amounts paid on long-term debt (3,144,000) (299,000)
Proceeds from issuance of short-term debt 4,829,000 0
Proceeds from issuance of long-term debt 2,100,000 0
Retirement of short-term and acquired debt (6,474,000) 0
Proceeds from construction funds held by trustee 1,340,000 0
------------ ------------
Net cash used in financing activities (9,915,000) (6,260,000)
------------ ------------
Net changes in cash and cash equivalents (13,505,000) 9,104,000
Cash and cash equivalents at beginning of year 17,587,000 7,107,000
------------ ------------
Cash and cash equivalents at April 30 $4,082,000 $16,211,000
============ ============
Supplemental Disclosure:
Interest paid (net of interest capitalized) $ 302,000 $ 168,000
Income taxes paid (net of refunds received) 25,204,000 18,023,000
</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, 1995
(Unaudited)
Note 1 - Inventories
Inventories at April 30, 1995 and July 31, 1994 were as follows:
<TABLE>
<CAPTION>
April 30, 1995 July 31, 1994
-------------- -------------
<S> <C> <C>
Raw materials $26,064,000 $22,221,000
Work in process 500,000 1,614,000
Finished products 56,692,000 45,708,000
------------ ------------
$83,256,000 $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 April 30, 1995, options to purchase 431,659 shares of common stock
were outstanding and 1,106,353 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 724,984
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, 1995 is 261,796. 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. The Company's authorization to repurchase additional shares
expired on July 31, 1993.
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
<PAGE>
Wallace Computer Services, Inc. Page 7
FORM 10-Q
For Quarterly Period Ended April 30, 1995
Note 3 - Changes in Accounting (continued)
or fair value, determined in the aggregate. The adoption of this statement
had no impact on net income, but decreased shareholders' equity by $169,000
at April 30, 1995 (net of tax).
The amortized cost and market value of investments as of adoption on
August 1, 1994, and as of April 30, 1995 were as follows:
<TABLE>
<CAPTION>
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>
<CAPTION>
April 30, 1995 Amortized Unrealized Holding Market
------------------ Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-Sale
State, Municipal & Other Govt Debt $21,135,000 $131,000 $34,000 $21,232,000
Equity 12,984,000 94,000 473,000 12,605,000
Held-to-Maturity
State, Municipal & Other Govt Debt 0 0 0 0
----------- ----------- ----------- -----------
Total Short-term Investments $34,119,000 $225,000 $507,000 $33,837,000
=========== =========== =========== ===========
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.
For the nine months ended April 30, 1995, proceeds on the sale of
available-for-sale securities were $5,555,000, with gross realized losses
of $20,000. The amortized cost of these securities was based on specific
identification. No securities during the period were classified as trading
<PAGE>
Wallace Computer Services, Inc. Page 8
FORM 10-Q
For Quarterly Period Ended April 30, 1995
Note 3 - Changes in Accounting (continued)
securities. The net unrealized loss on available-for-sale securities has
decreased by $265,000 (net of tax) from August 1, 1994 to April 30, 1995.
There have been no sales of held-to-maturity securities other than at their
maturity date.
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 April 30, 1995, net sales increased
27.3% to $180,119,000. Net income for the third quarter increased 24.8%
to $14,450,000 or 64 cents per share, from $11,576,000 or 52 cents per
share in fiscal 1994. Pretax income for the quarter was up by $4,850,000
or 26.8%.
For the nine month period ended April 30, 1995, net sales increased 17.2%
to $514,637,000. Net income before accounting changes for the three
quarters increased 11.7% to $39,530,000 or $1.76 per share, from
$35,397,000 or $1.60 per share in fiscal 1994. Pretax income excluding
accounting changes for the three quarters was up by $7,124,000 or 12.9%.
Cost of goods sold represented 62.6% of sales versus 60.5% in the third
quarter of fiscal 1994. The third quarter of fiscal 1995 includes a LIFO
charge of $2,984,000 or 8.4 cents per share as a result of higher paper
costs. Cost of goods sold for the three quarters was 63.7% in fiscal 1995
versus 61.8% in fiscal 1994. Total LIFO charges for the three quarters
were $6,633,000 or 18.7 cents per share. The LIFO charge for the first
three quarters of fiscal 1994 was $297,000.
Selling and administrative expenses were 19.7% of sales versus 21.3% in the
third quarter last year. For the three quarters of fiscal 1995, expenses
are 19.2% of sales versus 20.4% in fiscal 1994.
The provision for depreciation and amortization is up 11.6% in the first
three quarters from fiscal 1994. This increase is the result of the
company's continued reinvestment in capital resources and system
development.
Interest income for the first nine months increased by $190,000 or 7.4%
from the same period one year ago. The increase in interest income is due
to generally higher interest rates. The decrease in interest income in the
third quarter of $170,000 is due to the decrease in cash and investments
from last fiscal year, which is attributable to continued capital
investments and acquisition activity. Interest expense, which is shown
net of capitalized interest, increased $102,000 or 11.0% between years.
Increased interest expense is attributable to higher interest
<PAGE>
Wallace Computer Services, Inc. Page 9
FORM 10-Q
For Quarterly Period Ended April 30, 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
- ------------------------------------------------------------
Results of Operations (continued)
-----------------------------------------
rates on our variable rate Industrial Revenue Bonds.
Operating income for the quarter was up $5,059,000 or 29.0%. For the first
nine months, operating income was up $7,036,000 or 13.1%. For fiscal 1995
this represents 11.8% to sales versus 12.2% for fiscal 1994.
Effective February 1, 1995, the Company increased its effective tax rate
from 36.5% to 37.0%, principally due to interest on tax-exempt investments
being lower than expected.
Liquidity and Capital Resources
---------------------------------------
Working capital decreased by $3,240,000 from July 31, 1994, with a current
ratio of 3.5 at April 30, 1995. Long-term debt includes $23,500,000 of
industrial revenue bonds at rates ranging from 4.75% to 4.85%, as well
as $2,100,000 related to acquisitions made in the current fiscal year.
Long-term debt currently represents 5.5% of total capitalization.
Capital expenditures for the first nine months totaled $38,364,000. For
the full fiscal year, we project expenditures of $50.0 million, which will
be financed through internally generated funds and by the Industrial
Revenue Bond for our Lebanon facility.
Stockholders' equity increased by 7.4% to $440.3 million at April 30, 1995.
The current portion of long-term debt includes debt assumed in connection
with the acquisition of MGI Companies and Evergreen Realty in 1991. A
final payment on current debt of $2,959,000 was made in December 1994.
An additional payment of $2,980,000 has been made in May 1995 to retire
the last of the assumed debt.
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.
<PAGE>
Wallace Computer Services, Inc. Page 10
FORM 10-Q
For Quarterly Period Ended April 30, 1995
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
- ------------------------------------------------------------
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.
On April 19, 1995, we completed the acquisition of the assets of Retterbush
and Sauer Label Corporation. The 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 through 6. None
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<PAGE>
Page 11
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended April 30, 1995
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.
June 7, 1995 /s/ ROBERT CRONIN
-------------------- -------------------------------------
Date Robert Cronin
President and Chief Executive Officer
June 7, 1995 /s/ MICHAEL J. HALLORAN
-------------------- -------------------------------------
Date Michael J. Halloran
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> APR-30-1995
<CASH> 4,082
<SECURITIES> 33,837
<RECEIVABLES> 126,797
<ALLOWANCES> (2,809)
<INVENTORY> 83,256
<CURRENT-ASSETS> 253,734
<PP&E> 475,615
<DEPRECIATION> (222,825)
<TOTAL-ASSETS> 583,017
<CURRENT-LIABILITIES> 73,542
<BONDS> 25,600
<COMMON> 22,534
0
0
<OTHER-SE> 417,813
<TOTAL-LIABILITY-AND-EQUITY> 583,017
<SALES> 514,637
<TOTAL-REVENUES> 514,637
<CGS> 328,070
<TOTAL-COSTS> 453,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,161
<INTEREST-EXPENSE> 1,030
<INCOME-PRETAX> 62,432
<INCOME-TAX> 22,902
<INCOME-CONTINUING> 39,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,530
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
</TABLE>
