<PAGE> 1
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
January 31, 1998 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)
2275 Cabot Drive Lisle, Illinois 60532
---------------------------------------- ---------
(Address of Principal Executive Offices) (ZIP CODE)
(630) 588-5000 43,419,721
- ------------------------------- ------------------------------------
(Registrant's Telephone Number, (Number of Common Shares Outstanding
Including Area Code) as of February 27, 1998)
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> 2
Wallace Computer Services, Inc. Page 2
FORM 10-Q
For Quarterly Period Ended January 31, 1998
Part I Financial Information
----------------------------
Item 1. Financial Statements
- -----------------------------
The information furnished herein reflects all adjustments which are, in
the opinion of the management, necessary to a fair statement of the
results of operations and financial position for the six months ended
January 31, 1998, subject to year-end audit by independent public
accountants. These adjustments are of a normal, recurring nature.
Wallace Computer Services, Inc. and Subsidiaries
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
January 31
----------------------------------------------
% %
1998 Sales 1997 Sales
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net Sales $612,468,000 100.0 $446,232,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 402,156,000 65.7 268,356,000 60.1
Selling and administrative expenses 102,931,000 16.8 83,163,000 18.6
Provision for depreciation and
amortization 31,460,000 5.1 24,054,000 5.4
------------ ----- ------------ -----
Total costs and expenses $536,547,000 87.6 $375,573,000 84.2
------------ ----- ------------ -----
Operating Income 75,921,000 12.4 70,659,000 15.8
------------ ----- ------------ -----
Interest income (1,723,000) (0.3) (1,039,000) (0.2)
Interest expense 8,215,000 1.3 1,059,000 0.2
------------ ----- ------------ -----
Income before Income Taxes 69,429,000 11.3 70,639,000 15.8
Provision for Income Taxes (Note 4) 27,598,000 4.5 27,902,000 6.3
------------ ----- ------------ -----
Net Income $ 41,831,000 6.8 $ 42,737,000 9.6
============ ===== ============ =====
Basic Earnings per Share $ 0.97 $ 0.98
============ ============
Fully Diluted Earnings per Share $ 0.96 $ 0.97
============ ============
Average Common Shares Outstanding 43,058,000 43,574,000
============ ============
Fully Diluted Common Shares Outstanding 43,541,000 43,892,000
============ ============
Dividends Declared Per Share $ 0.31 $ 0.28
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 3
Wallace Computer Services, Inc. Page 3
FORM 10-Q
For Quarterly Period Ended January 31, 1998
Wallace Computer Services, Inc. and Subsidiaries
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
January 31
----------------------------------------------
% %
1998 Sales 1997 Sales
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net Sales $366,356,000 100.0 $225,439,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 246,951,000 67.4 135,569,000 60.1
Selling and administrative expenses 59,689,000 16.3 41,934,000 18.6
Provision for depreciation and
amortization 18,221,000 5.0 12,136,000 5.4
------------ ---- ------------ ----
Total costs and expenses $324,861,000 88.7 $189,639,000 84.1
------------ ---- ------------ ----
Operating Income 41,495,000 11.3 35,800,000 15.9
------------ ---- ------------ ----
Interest income (506,000) (0.1) (414,000) (0.2)
Interest expense 7,296,000 2.0 584,000 0.3
------------ ---- ------------ ----
Income before Income Taxes 34,705,000 9.5 35,630,000 15.8
Provision for Income Taxes (Note 4) 13,882,000 3.8 14,074,000 6.2
------------ ---- ------------ ----
Net Income $ 20,823,000 5.7 $ 21,556,000 9.6
============ ==== ============ ====
Basic Earnings per Share $ 0.48 $ 0.50
============ ============
Fully Diluted Earnings per Share $ 0.48 $ 0.50
============ ============
Average Common Shares Outstanding 43,107,000 42,968,000
============ ============
Fully Diluted Common Shares Outstanding 43,632,000 43,339,000
============ ============
Dividends Declared Per Share $ 0.155 $ 0.140
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
Wallace Computer Services, Inc. and Subsidiaries Page 4
Consolidated Balance Sheet
<TABLE>
<CAPTION>
January 31, 1998 July 31, 1997
(Unaudited) (Audited)
Assets -------------- -------------
- ------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 27,363,000 $ 14,168,000
Short-term investments 0 1,706,000
Accounts receivable 263,447,000 171,059,000
Less-allowance for doubtful accounts 6,981,000 3,481,000
-------------- ------------
Net receivables 256,466,000 167,578,000
Inventories (Note 1) 124,567,000 85,150,000
Prepaid taxes 26,212,000 16,748,000
Advances and prepaid expenses 16,205,000 5,140,000
-------------- ------------
Total current assets 450,813,000 290,490,000
-------------- ------------
Property, plant and equipment, at cost 783,338,000 608,486,000
Less-reserves for depreciation and amortization 331,464,000 306,994,000
-------------- ------------
Net property, plant and equipment 451,874,000 301,492,000
-------------- ------------
Intangible assets arising from acquisitions 281,405,000 59,913,000
Cash surrender value of life insurance 47,894,000 39,845,000
Systems development costs 25,745,000 24,404,000
Other assets 6,309,000 4,298,000
-------------- ------------
Total assets $1,264,040,000 $720,442,000
============== ============
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Current portion long-term debt $ 4,548,000 $ 7,100,000
Short-term notes payable 58,065,000 28,500,000
Accounts payable 74,775,000 49,348,000
Accrued salaries, wages, profit sharing
and other 70,328,000 56,308,000
-------------- ------------
Total current liabilities 207,716,000 141,256,000
-------------- -----------
Long-term debt 437,836,000 24,500,000
Deferred income taxes 49,073,000 32,669,000
Deferred compensation and retirement benefits 28,671,000 28,829,000
Other long-term liabilities 9,361,000 0
Stockholders' equity
Common stock (Note 2)- issued shares of
45,764,054 at January 31, 1998 and
July 31, 1997 45,764,000 45,764,000
Additional capital 37,080,000 34,739,000
Retained earnings 519,140,000 491,719,000
Unrealized loss on securities 0 (95,000)
Treasury stock (at cost)- 2,354,873 shares
at January 31, 1998 and 2,693,784 shares
at July 31, 1997 (70,601,000) (78,939,000)
-------------- ------------
Total stockholders' equity 531,383,000 493,188,000
-------------- ------------
Total liabilities and stockholders' equity $1,264,040,000 $720,442,000
============== ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
Wallace Computer Services, Inc. and Subsidiaries Page 5
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
January 31
-------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income from operations $ 41,831,000 $ 42,737,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 31,460,000 24,054,000
Deferred taxes (1,845,000) 120,000
(Gain)/loss on disposal of property 19,000 (15,000)
Changes in assets and liabilities
Accounts receivable 4,487,000 (11,483,000)
Inventories (8,997,000) (9,136,000)
Advances and prepaid expenses 11,145,000 (1,786,000)
Prepaid taxes (9,465,000) 0
Other assets (11,729,000) (10,730,000)
Accounts payable and other liabilities (16,946,000) (10,055,000)
Accrued income taxes (14,000) (1,000)
Deferred compensation and retirement
benefits (158,000) 2,313,000
Realized security (gain) loss (9,000) (7,000)
-------------- -------------
Net cash provided by operating activities 39,779,000 26,011,000
-------------- -------------
Cash Flows from Investing Activities:
Capital expenditures (27,939,000) (21,145,000)
Purchases of short-term investments 0 (14,000,000)
Proceeds from sales of short-term
investments 1,875,000 50,179,000
Proceeds from disposal of property (7,000) 92,000
Net construction funds held by trustee 0 (65,000)
Other capital investments-acquisitions (437,830,000) (6,586,000)
-------------- -------------
Net cash used in investing activities (463,901,000) 8,475,000
-------------- -------------
Cash Flows from Financing Activities:
Treasury stock transactions 9,653,000 (70,416,000)
Cash dividends paid (12,685,000) (10,787,000)
Proceeds from issuance of short-term debt 29,565,000 30,000,000
Retirement of long-term debt (5,100,000) 0
Proceeds from issuance of long-term debt 415,884,000 0
-------------- -------------
Net cash used in financing activities 437,317,000 (51,203,000)
-------------- -------------
Net changes in cash and cash equivalents 13,195,000 (16,717,000)
Cash and cash equivalents at beginning of year 14,168,000 23,618,000
-------------- -------------
Cash and cash equivalents at January 31 $ 27,363,000 $ 6,901,000
============== =============
Supplemental Disclosure:
Interest paid (net of interest capitalized) $ 5,572,000 $ 377,000
Income taxes paid (net of refunds received) 29,463,000 29,718,000
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 6
Wallace Computer Services, Inc. and Subsidiaries Page 6
Notes to Consolidated Financial Statements
January 31, 1998
(Unaudited)
Note 1 - Inventories
Inventories at January 31, 1998, and July 31, 1997, were as follows:
<TABLE>
<CAPTION>
January 31, 1998 July 31, 1997
---------------- -------------
<S> <C> <C>
Raw materials $ 30,702,000 $21,440,000
Work in process 29,839,000 1,426,000
Finished products 64,026,000 62,284,000
------------ -----------
$124,567,000 $85,150,000
============ ===========
</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 January 31, 1998, options to purchase 1,769,740 shares of common
stock were outstanding and 3,490,872 shares of common stock were
available for future grants under the Registrant's Stock Option and
Employee Stock Purchase Plans.
The Registrant has authorized 100,000,000 shares of common stock and
issued 45,764,054 as of January 31, 1998. Of these shares, 2,354,873
were held in treasury as of January 31, 1998. The number of shares held
in treasury at July 31, 1997 was 2,693,784.
Note 3 - Acquisition of Graphic Industries
On November 3, 1997, a wholly owned subsidiary of the Registrant
completed a tender offer for all of the shares of common stock of Graphic
Industries, Inc. a Georgia corporation ("Graphic"). On December 22,
1997, the wholly owned subsidiary was merged with and into Graphic, with
Graphic becoming a wholly owned subsidiary of the Registrant as a result
of the Merger. The total cost of the acquisition, including the purchase
of all outstanding shares of Graphic at $21.75 per share, assumed debt,
and transaction costs, was $437,830,000. The acquisition has been
accounted for as a purchase. The Registrant's financial results for the
three month period ended January 31, 1998 includes the operations of
Graphic since November 3, 1997.
The cost of the acquisition has been allocated on the basis of the
estimated fair market value of the assets acquired. This preliminary
purchase price allocation (subject to final fixed asset appraisals, as
well as other possible accrual adjustments) resulted in goodwill of
$223,727,000. Goodwill will be amortized on a straight line basis over
40 years.
The pro forma financial results of operation below assume the transaction
was completed at the beginning of the periods presented and include
adjustments for increased interest costs associated with the transaction,
as well as increased depreciation, amortization, and effective income tax
rates to reflect the effects of the preliminary purchase price
allocation:
<PAGE> 7
Page 7
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended January 31, 1998
Note 3 - Acquisition of Graphic Industries (continued)
<TABLE>
<CAPTION>
Six months ended January 31, 1998 1997
------------ ------------
<S> <C> <C>
Net sales $729,910,000 $673,659,000
Net income $ 40,342,000 $ 43,267,000
Net earnings per share $ 0.93 $ 0.99
</TABLE>
Note 4 - Income Taxes
Effective November 1, 1997, the Registrant increased its effective tax
rate from 39.5% to 40.0%. The income tax rate had been 39.5% since
August 1, 1996. The increase in the effective tax rate is due to higher
goodwill amortization expense, which is not tax deductible.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------
Results of Operations
---------------------
For the three month period ended January 31, 1998, net sales increased
62.5% to $366,356,000. Graphic sales in the quarter were $112,865,000.
The quarterly increase in sales without Graphic was 12.4%. Excluding the
acquisition of Moran Printing, a commercial printer acquired in July,
1997, the increase in sales for the quarter was 7.8%. Excluding the
commercial printing segment, the Registrant estimates that unit growth
for the quarter was around 9%. For the six months ended January 31,
1998, net sales increased 37.3% to $612,468,000. Before Graphic, the
increase was 12.0%.
Sales to W.I.N. and Select Services customers totalled 31% of the second
quarter's sales and 45% of sales without Graphic. This number compares
to 43% in the second quarter a year ago.
Net income for the second quarter decreased 3.4% to $20,823,000 or 48
cents per share. Graphic results for the quarter were dilutive by 2 cents
per share, after including the impact of goodwill amortization and
interest expense. Net income for the six month period decreased 2.1% to
$41,831,000 or 97 cents per share. The Registrant expects that the
results for Graphic will be break-even for the fiscal year ended July 31,
1998. In addition to the impact of Graphic on the current fiscal year,
the first quarter was impacted by the UPS strike in August, 1997. UPS is
both a large customer and a significant supplier to the Registrant. The
Registrant estimates that the effects of the strike reduced earnings per
share in the first quarter by one to two cents.
Cost of sales for the quarter was 67.4% of sales for the quarter.
Without Graphic, the cost of sales was 65.1% versus 60.1% in the second
quarter of fiscal 1997. The second quarter includes a LIFO charge of
$448,000 or 0.6 cents per share versus a credit of $739,000 or 1.0 cents
per share in the second quarter last year. Total LIFO charges in the
first half were $1,030,000 or 1.4 cents per share versus credits of
$971,000 or 1.3 cents per share last year. Cost of sales for the
previous three quarters before LIFO effect has been around 63%. In the
current quarter, without Graphic and before LIFO effect, cost of sales is
64.9%.
Cost of sales has trended higher over the past year due to increasing
paper prices. Bond paper prices increased in June, August and again in
October at a rate of about 6% each increase. These
<PAGE> 8
Page 8
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended January 31, 1998
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- -------------------------------------------------------------------
increases impact margins in that there is usually a one quarter lag
between the time of a paper price increase and our ability to raise
selling prices. The most recent increases have taken longer than one
quarter to pass along, thus affecting the second quarter. Moving into
the third quarter the Registrant anticipates some improvement in margins
as the Registrant is now realizing success in raising selling prices.
Selling and administration expenses for the quarter were 16.3% versus
18.6% in the second quarter of last year. For the six months ended
January 31, the ratio to sales was 16.8% versus 18.6% last year. This
year's total includes $480,000 in the first quarter and $596,000 in the
second quarter of Year 2000 related programming expenses. The Registrant
is expecting another $2 million in the second half of this fiscal year.
Included in the first half of fiscal 1997 is $787,000 of expenses related
to a proxy contest over the Wyser-Pratte proposals to amend our By-laws
and Wyser-Pratte's nomination of an alternate slate of directors. The
Wyser-Pratte proposals were never adopted by the shareholders and the
directors nominated by Wyser-Pratte were not elected.
Depreciation and amortization for the quarter was $18,221,000 or 5.0% of
sales versus $12,136,000 or 5.4% of sales in the second quarter a year
ago. Depreciation expense of $15,008,000 includes $3,794,000 from
Graphic. Goodwill amortization of $1,805,000 for the quarter includes
$1,398,000 from the Graphic acquisition. An additional $106,000 of
goodwill amortization has been recognized in both the first and second
quarters of this fiscal year related to the Moran acquisition completed
last July. Total depreciation and amortization, before the impact of
Graphic, increased 7.4% and is the result of continued reinvestment in
capital resources and system development.
Interest expense for the quarter increased by $6,712,000 from the same
period one year ago. The current quarter includes $6,965,000 related to
the Graphic acquisition. For the year, interest expense increased by
$7,156,000. Interest income for the quarter increased by $92,000 and for
the year has increased by $684,000. Interest income in the first quarter
of fiscal 1998 included a positive adjustment of $800,000 for the cash
surrender value of life insurance policies.
Some of the financial ratios for the twelve months ended January 31, 1998
were: Return on Net Sales of 7.5%, Return on Average Assets of 8.3%, and
Return on Equity of 16.0%. Those same ratios before adding Graphic were:
Return on Net Sales of 8.5%, Return on Average Assets of 11.4%, and
Return on Equity of 16.2%.
Liquidity and Capital Resources
-------------------------------
Working capital increased by $93,863,000 from July 31, 1997, primarily
due to the Graphic acquisition. The current ratio at January 31, 1998
was 2.2 to 1.
During the first quarter, the Registrant entered into a five-year Credit
Agreement providing a maximum aggregate principal amount available to be
borrowed of $500,000,000 ("Credit Facility"). In the second quarter, the
Registrant borrowed $396,000,000 to fund the acquisition of Graphic. The
Credit Facility will be further used to fund acquisitions and for general
corporate purposes. The Credit Agreement was filed as Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter
<PAGE> 9
Page 9
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended January 31, 1998
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- -------------------------------------------------------------------
ended October 31, 1997. In addition to the Credit Facility, the
Registrant has unsecured money market lines of $125,000,000, under which
$57,000,000 was borrowed at January 31, 1998. The maximum amount as
authorized by the Board of Directors for short-term borrowings under the
Credit Facility and the money market lines is limited to $600,000,000.
The borrowings under the Credit Facility are classified as long-term debt
as of January 31, 1998 since the Registrant has the intent and ability to
carry that debt long-term. The $57,000,000 from the unsecured money
market lines is classified as short-term debt.
Of the remaining long-term debt, $23,500,000 is made up of industrial
revenue bonds at rates ranging from 3.55% to 3.65%. The balance of
$18,336,000 relates to acquisitions, $1,000,000 due to the former owners
of Moran Printing, with the rest being long-term debt from the Graphic
acquisition. Long-term debt currently represents 45.2% of total
capitalization.
Capital expenditures for the first six months totalled $27,939,000,
including $10,595,000 for Graphic. For the second half of fiscal 1998,
the Registrant expects to spend another $20,000,000 to $23,000,000 on
capital expenditures, which are expected to be financed through
internally generated funds and by borrowing against the revolving credit
facility and unsecured money market lines.
Stockholders' equity increased 7.7% to $531,383,000 at January 31, 1998.
Current inventory levels are believed to be in-line with the inventory
levels necessary to satisfy customer demand. The Registrant anticipates
having adequate sources of supply of raw materials to meet future
business requirements.
Common Stock
------------
On September 3, 1997, the Board of Directors increased the annualized
dividend rate to $0.62 per share, a 10.7% increase from fiscal 1997.
During the first six months of fiscal year 1998, the Registrant has
purchased 130,000 shares of Wallace common stock. Total repurchases
against the $100 million authorized by the Board in June, 1997 have been
$9.7 million.
<PAGE> 10
Wallace Computer Services, Inc. Page 10
FORM 10-Q
For Quarterly Period Ended January 31, 1998
Part II Other Information
--------------------------
Items 1 through 3 None
- -----------------
Item 4 Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Registrant held its annual meeting of stockholders on November 5, 1997.
The results of the five proposals put to a shareholder vote are as follows:
1) Election of three directors for the class of directors whose terms are
expiring at the 1997 Annual Meeting.
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
Theodore Dimitriou 36,612,176 157,507
William N. Lane III 36,632,182 137,501
John C. Pope 36,623,796 145,887
</TABLE>
2) Proposal to adopt an amendment to Employee Stock Purchase Plan which would
(a) provide fourteen additional six-month offering periods thereby extending
the Plan to December 31, 2004 and (b) increase the aggregate number of shares
of the Registrant's Common Stock that may be purchased pursuant to the options
granted under the Plan from 4,700,000 to 6,600,000.
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote*
---------- ------- ------- ---------------
<S> <C> <C> <C>
32,876,039 713,073 110,939 3,069,632
</TABLE>
3) Proposal to adopt the Registrant's Annual Bonus Plan.
<TABLE>
<CAPTION>
For Against Abstain
---------- ------- -------
<S> <C> <C>
35,471,213 1,037,786 260,684
</TABLE>
4) Proposal to adopt the Registrant's 1997 Performance Share Plan, including
performance goals, which provides for the issuance of up to 250,000 shares of
Common Stock.
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote*
---------- ------- ------- ---------------
<S> <C> <C> <C>
32,007,975 1,447,659 252,017 3,062,032
</TABLE>
5) Ratification of the appointment of Arthur Andersen LLP as the Registrant's
independent public accountants for the fiscal year 1998.
<TABLE>
<CAPTION>
For Against Abstain
---------- ------- -------
<S> <C> <C>
36,629,628 66,937 73,118
</TABLE>
* Broker Non-Votes are deemed to be votes against the proposal.
<PAGE> 11
Wallace Computer Services, Inc. Page 11
FORM 10-Q
For Quarterly Period Ended January 31, 1998
Item 5 Other Information
- ---------------------------
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Certain statements in this filing and elsewhere (such as in other
filings by the Registrant with the Securities and Exchange Commission, press
releases, presentations by the Registrant or its management, and oral
statements) may constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, that address activities, events, or
developments that the Registrant expects or anticipates may occur in the
future, including such things as future capital expenditures (including the
amount and nature thereof), business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of the
Registrant's and its subsidiaries' business and operations, plans, references
to future success and other such matters are forward-looking statements. These
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements
of the Registrant to materially differ from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, general economic, market or business
conditions, changes in laws or regulations; the opportunities (or lack thereof)
that may be presented to and pursued by the Registrant and its subsidiaries;
successful integration of acquisitions; labor market conditions; changes in
postal rates and paper prices; the ability of the Registrant to retain its
customers who generally do not operate under long-term contracts with the
Registrant; the potential unpredictability of the Registrant's net sales due to
seasonal and other factors which can lead to fluctuations in quarterly and
annual operating results; the ability of the Registrant to keep pace with
technological advancements in the industry; the effect of technical
advancements on the demand for the Registrant's goods and services; and the
risk of damage to the Registrant's data centers and manufacturing facilities or
interruptions in the Registrant's telecommunications links.
Item 6 Exhibits and Reports on Form 8-K
- ---------------------------------------
(a) Exhibits
10.1 The Wallace Computer Services, Inc. Amended and
Restated Executive Incentive Plan, dated as of August 1, 1997.
10.2 First Amendment to The Wallace Computer Services,
Inc. Benefit Trust, effective as of October 31, 1997.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
(1) A report on Form 8-K was filed on November 18, 1997.
The report announced the acceptance for payment by Greenwich
Acquisition Corp., a wholly owned subsidiary of the Registrant,
of 8,447,988 shares of common stock of Graphic Industries, Inc.
The report also announced the acceptance for payment of
4,303,092 shares of Class B Shares from Mark C. Pope III.
(2) A report on Form 8-K was filed on January 5, 1998.
The exhibit filed with the report was a press release of the
Registrant dated December 22, 1997 announcing the completion of
the acquisition of Graphic Industries, Inc.
(3) A report on Form 8-K/A was filed on January 16, 1998
(amending a report filed on November 18, 1997). The amended
report contained (a) financial statements of Graphic Industries,
Inc., including (i) annual financial statements for the fiscal
year ended January 31, 1997, and (ii) interim financial
statements for the third quarter ended October 31, 1997, and (b)
unaudited pro forma financial statements including, (i)
<PAGE> 12
Wallace Computer Services, Inc. Page 12
FORM 10-Q
For Quarterly Period Ended January 31, 1998
Item 6 Exhibits and Reports on Form 8-K (continued)
- ---------------------------------------------------
condensed consolidated statement of operations for the three
months ended October 31, 1997 and the fiscal year ended July 31,
1997 presenting pro forma operating results for the Registrant as
if the acquisition of Graphic had occurred as of the beginning of
the periods presented, and (ii) condensed consolidated balance
sheet as of October 31, 1997 as if the acquisition of Graphic had
occurred as of October 31, 1997.
<PAGE> 13
Page 13
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended January 31, 1998
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.
March 16, 1998 /s/ Robert J. Cronin
------------------ -----------------------------------------
Date Robert J. Cronin
President and Chief Executive Officer
March 16, 1998 /s/ Michael J. Halloran
------------------ -----------------------------------------
Date Michael J. Halloran
Vice President, Chief Financial Officer,
and Assistant Secretary
(Principal Accounting Officer)
<PAGE> 1
Exhibit 10.1
WALLACE COMPUTER SERVICES, INC.
AMENDED AND RESTATED
EXECUTIVE INCENTIVE PLAN
SECTION 1. Purpose of Plan. The purpose of this Plan is to provide a means of
providing reward for performance and incentive for future performance, in
addition to salaries and other benefits to employees (including officers) of
WALLACE COMPUTER SERVICES, INC. and its subsidiaries ("Company") in managerial
and other important positions who contribute materially to the success of the
Company's business by their ability, ingenuity and industry, and demonstrated
by results shown in the consolidated financial statements in the Annual Reports
to Stockholders. This Plan is designed to include only a select group of
management or highly compensated employees.
SECTION 2. General Definitions.
(a) The term "Committee" shall mean the Compensation Committee of the
Company's Board of Directors, which shall consist of not fewer than two
members of the Company's Board of Directors, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended.
(b) The term "Common Stock" shall mean the common stock of the Company.
(c) The term "Employee" shall mean persons employed by the Company or any
subsidiary in which the Company owns directly or indirectly all or
substantially all of the common stock and shall include employees who are
also directors of the Company or any such subsidiary and may, in the
discretion of the Committee, include persons who at the request of the
Company accept employment with any company in which the Company has a
substantial ownership interest.
(d) The term "Fair Market Value" as it pertains to a share of Common Stock at
any date will be either:
(i) the closing price of the Stock as reported in the New York
Stock Exchange Composite Transaction Table in The Wall Street
Journal, on that date; or
(ii) if such shares are not then listed on the New York Stock
Exchange or so reported (or determined by the Committee to be
improperly reported), then as established by the Committee.
<PAGE> 2
(e) The term "Participant" as used in this Plan shall include the
beneficiaries designated by a participant as provided in Section 6(b) or
if no such designation of any beneficiary has been made, the Participant's
legal representatives or other persons entitled to any payment or benefit
with respect to the Participant pursuant to this Plan.
SECTION 3. Administration of the Plan.
The Plan shall be administered by the Committee in a manner consistent with the
Bylaws of the Company.
SECTION 4. Eligibility.
(a) An Employee shall be eligible for consideration for an Award under this
Plan based on such criteria as the Committee shall from year to year
determine. A person whose employment terminates during the year or who is
granted a leave of absence during the year, and who at the time of such
termination of employment or granting of leave is eligible for
consideration of bonus, may, at the discretion of the Committee and under
such rules as the Committee may from time to time approve, be awarded a
bonus with respect to the period of his or her services during the year.
(b) No bonus shall be awarded to a member of the Committee. Membership on any
other committee of the Board of Directors shall not itself render an
Employee ineligible for a bonus award.
(c) Nothing in this Plan shall be construed as preventing the Company from
establishing incentive or other variable compensation plans applicable to
Employees.
SECTION 5.1 Awards to Participants.
(a) An Award shall be made at the discretion of the Committee and the value
of any such award at the date of award shall not exceed 66-2/3% (.6666) of
any current cash bonus paid to any Participant. Unless otherwise
determined by the Committee, Awards shall be denominated in shares of
Common Stock ("Stock Award"). The number of shares of Common Stock
awarded shall be determined by dividing the Award by the Fair Market Value
of the Common Stock on the date that the Award is granted. A Stock Award
may be settled in whole or fractional shares of Common Stock.
(b) Awards under the Plan shall be made on a deferred payment basis. The
Award shall be credited to the Participant on the books of the Company,
but, except as set forth in Section 5.2(e), will not otherwise be set
aside from the Company's other funds.
(c) No Participant shall have any right with respect to any Award until such
award shall have been delivered to him.
2
<PAGE> 3
(d) There shall be deducted from all payments or distributions of Awards
under the Plan, any taxes required by law to be withheld.
SECTION 5.2 Conversion of Cash Awards to Stock.
(a) At the sole discretion and consent of the Committee, a Participant may
convert a cash denominated Award ("Cash Award") (either on a current basis
from time to time, or with respect to Cash Awards previously granted) into
actual shares of the Common Stock.
(b) Certain Participants were previously entitled to elect to have Cash
Awards converted into hypothetical Common Stock ("Stock Equivalent
Award"). Any Stock Equivalent Awards credited to a Participant shall be
converted into an equal number of actual shares of Common Stock and shall
be treated as a Stock Award hereunder.
(c) The Participant's Stock Award Account shall be credited with a dividend
on any dividend payment date based on the number of shares of Common Stock
credited to such Participant's Stock Award Account. Dividends paid on
stock beneficially owned pursuant to this Plan shall be converted to
Common Stock on the last trading day of each calendar year.
(d) For purposes of any conversion pursuant to clause (a) or (c), Stock shall
be valued at the Fair Market Value of the Stock on the date of the
conversion.
(e) Common Stock credited to a Participant under this Plan shall be deposited
into a Grantor Trust maintained by the Company for the benefit of the
Participant, subject to the conditions of Section 6(c) of the Plan.
Although the Stock will be held in trust, a Participant's rights in the
Stock shall be that of a general creditor of the Company.
SECTION 6. Payment of Awards.
(a) Subject to the conditions set forth in Section 6(d) of the Plan, payment
of Cash Award balances shall be made in 120 monthly installments
commencing on the first day of the calendar quarter following the month in
which the Participant's employment with the Company terminates
("Termination Date"). In lieu of installment payments, the Committee,
after consultation with the Participant, may in its discretion pay any
amount due in a lump sum. Account balances of less than $5,000 shall be
automatically paid in a lump sum.
(b) Subject to the conditions set forth in Section 6(d) of the Plan, payment
of Stock Award balances shall be made in 10 annual installments commencing
on the first day of the year following the year in which the Participant's
employment with the Company terminates ("Termination Date"). In lieu of
installment payments, the Committee, after
3
<PAGE> 4
consultation with the Participant, may in its discretion transfer any
Stock Award in a lump sum.
(c) Any Award, or remaining unpaid portions thereof, which becomes payable
after the death of a Participant, shall be paid in installments or in a
lump sum to his or her beneficiaries. Unless otherwise designated in a
written form given to the Company, where permitted under the laws of the
state in which the Participant resides, the written designation of a
beneficiary filed by a Participant in connection with the Group Life
Insurance Program of the Company or a Subsidiary, as the case may be,
shall determine who is to receive any Award standing to the Participant's
credit at any time under the Plan in the event of such Participant's death
prior to delivery to him of such Award.
(d) All Awards are contingently payable and shall be subject to the following
conditions:
1. That the Participant continue to render services as an Employee
of the Company until his or her Normal Retirement Date or Early
Retirement Date, as defined in the Wallace Profit Sharing and
Retirement Fund, which condition shall be waived in the event of
death or disability of a Participant prior to termination of
employment.
2. If a Participant at any time engages in any activity that the
Committee determines, in its discretion, was or is harmful to the
interests of the Company, the Committee may determine whether or
not and, if so, the extent to which any unpaid contingent deferred
installment credited to the Participant shall be forfeited. This
subparagraph shall apply: (i) to activities that may occur prior to
and that do not result in termination of service but which do not
become known to the Committee until after termination of service;
(ii) to activities that occur prior to but result in termination of
service; and (iii) to activities that occur following termination
of service and during the period when the Participant would
otherwise be entitled to receive payment of the contingent
allotments credited to him. The Committee shall have the
authority, in its discretion, to determine what kinds of activities
shall be deemed to be harmful for the purposes of this
subparagraph. A determination by the Committee under this
subparagraph, including its determination as to the time at which
harmful activities commenced, shall be conclusive.
(e) Notwithstanding the provisions of paragraphs (a) through (c) of this
Section 6, the Committee shall possess absolute discretion to accelerate
the payment of all or part of any remaining unpaid installments to the
extent that it deems equitable or desirable under the circumstances.
(f) The Participant's Cash Award Account shall be credited with an assumed
annual interest rate equal to the greater of (i) the rate paid by First
Chicago NBD Bank as of
4
<PAGE> 5
the first day of the applicable calendar year on a $1,000,000 Certificate
of Deposit with a one year maturity, and (ii) 5%.
(g) The Committee shall provide a Participant, former Participant or
Beneficiary (hereinafter referred to as "Claimant") who has been denied a
claim for benefits, a written notice within ninety (90) days of such
denial setting forth (1) the specific reason or reasons for the denial;
(2) specific reference to pertinent Plan provisions upon which the denial
is based; (3) if applicable, a description of any additional material or
information necessary to perfect the claim, and (4) appropriate
information as to the steps required by the Claimant to request a full
review of the benefit denial. The Claimant (or his or her duly authorized
representative) who has been denied a benefit may within sixty (60) days
of such denial request a review of the denial upon written application to
the Committee. The Claimant must be able to review all pertinent
documents and submit in writing any issues and comments upon which such
request for review is based. Within sixty (60) days of receiving such
request, the Committee shall conduct a full and fair review of the claim
and its denial and shall furnish the decision on review on the Claimant in
writing. Should this decision or review not be communicated to the
Claimant within sixty (60) days the claim shall be deemed denied.
SECTION 7. General Conditions.
(a) The Board of Directors may from time to time amend, suspend or terminate
in whole or in part, and if terminated, may reinstate any or all of the
provisions of the Plan.
(b) The validity, construction, interpretation, administration and effect of
the Plan, and of its rules and regulations, and the rights of any and all
persons having or claiming to have an interest therein or thereunder,
shall be governed by, and determined exclusively and solely in accordance
with, the law of the State of Delaware.
(c) The selection of any Employee for participation in the Plan shall not
give such Participant any right to be retained in the employ of the
Company and the right and power of the Company to dismiss or discharge any
Participant is specifically reserved. Nor shall any such Participant or
any person claiming under or through him have any right or interest,
whether vested or otherwise, in this Plan, or in any Award hereunder,
unless and until all the terms, conditions and provisions of the Plan that
affect such Participant have been complied with as specified herein.
(d) Any decision or action taken or to be made by the Company, or the Board
of Directors, or the Committee, arising out of or in connection with the
construction, administration, interpretation, and effect of the Plan and
of its rules and regulations shall lie within their absolute discretion
and shall be conclusive and binding upon all Participants and any person
claiming under or through any Participant.
(e) The Board of Directors and the Committee may rely upon any information
supplied to them by any officer of the Company in connection with the
administration of the Plan.
5
<PAGE> 6
(f) No member of the Board of Directors or of the Committee shall be liable
for any act or action, whether of commission or omission, taken by any
other member, or by any officer, agent, or employee.
(g) The Committee shall conduct its business and hold meetings as determined
by it from time to time and any action taken by the Committee at meetings
duly called shall require the affirmative vote of at least a majority of
its members then in office.
(h) The expenses of administering this Plan shall be borne by the Company.
(i) Every right of action by or on behalf of the Company or by any
stockholders against any past, present or future member of the Board of
Directors, officer or employee of the Company arising out of or in
connection with this Plan shall, irrespective of the place where action
may be brought and irrespective of the place of residence of any such
director, officer or employee, cease and be barred by the expiration of
three years from whichever is the later of (a) the date of the act or
omission in respect of which such right of action arises or (b) the first
date upon which there has been made generally available to stockholders an
annual report of the Company and a proxy statement for the annual meeting
of stockholders following the issuance of such annual report, which annual
report and proxy statement alone or together set forth, for the related
period, the amount of the credits to the reserve for the purposes of this
Plan and the aggregate bonus awards; any and all right of action by any
employee (past, present or future) against the Company arising out of or
in connection with this Plan shall, irrespective of the place where action
may be brought cease and be barred by the expiration of three years from
the date of the act or omission in respect of which such right of action
arises.
SECTION 8. Indemnification of the Committee Members and Directors by the
Company.
The Company hereby agrees to indemnify the Committee Members and Directors for
and to hold each of them harmless against any and all liabilities, losses,
costs or expenses (including legal fees and expenses) of whatsoever kind and
nature which may be imposed on, incurred by or asserted against them at any
time by reason of their actions under this Plan if they did not act dishonestly
or in willful or grossly negligent violation of the law or regulation under
which such liability, loss, cost or expense is not insured against or exceeds
any insurance recovery.
SECTION 9. Effective Date.
This Plan, as amended and restated, shall be applicable for the fiscal year
beginning August 1, 1997 and subsequent fiscal years.
SECTION 10. Material Change Provisions.
6
<PAGE> 7
10.1 Application. Notwithstanding any other provision of the Plan, the
provisions of this Section 10 shall apply on and after the date that a
Material Change (as defined in Section 10.4) occurs.
10.2 Vesting of Account Balances. At all times after the Material Change
occurs, the accounts of the Participants shall be fully vested and not
subject to forfeiture for any reason.
10.3 Administration of Plan. At all times after the Material Change occurs,
the exercise of authority and responsibility in the administration of the
Plan with respect to each individual who was a Participant in the Plan
immediately prior to the date that the Material Change occurs (a
"Protected Participant") or with respect to the beneficiary of a
Protected Participant, shall be subject to a de novo standard of review
by a court in any action brought by a Protected Participant.
10.4 Material Change Defined. For purposes of this Section 10, a "Material
Change" shall be deemed to have occurred if any of the following should
occur:
(a) the acquisition (in one or more transactions) of beneficial
ownership of thirty-five percent (35%) or more of the outstanding
shares of Common Stock of the Company by any person or entity (or by
any group of persons or entities acting in concert for the purpose
of acquiring, voting, holding or disposing of shares of the
Company's Common Stock);
(b) individuals who, as of September 6, 1995, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for
any reason to constitute at least a majority of such Board;
provided, however, that any individual who becomes a member of the
Board of Directors of the Company subsequent to such date whose
election, or nomination for election by the stockholders of the
Company, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed to be
a member of the Incumbent Board; and provided further, that no
individual whose election or initial assumption of office as a
director of the Company occurs as a result of an actual or
threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended) with respect to the election or removal of
directors, or any other actual or threatened solicitation of proxies
or consents by or on behalf of any person other than the Board of
Directors of the Company, shall be deemed to be a member of the
Incumbent Board; or
(c) the occurrence of any other event or state of facts that the
Board of Directors of the Company may determine (by the adoption of
a resolution) has, does, or would constitute a Material Change for
the purposes of this Section 10.
7
<PAGE> 8
10.5 Related Company Defined. The term "Related Company" means any
corporation, trade, or business during any period that is, along with the
Company, a member of a controlled group of corporations, a controlled
group of trades or businesses, or an affiliated service group, as
described in Sections 414(B), 414(C), or 414(m), respectively, of the
Code.
10.6 Attorneys' Fees and Other Costs and Expenses. Any Protected Participant
(or a Beneficiary of a Protected Participant) who brings any legal action
after a Material Change to enforce the provisions of this Section 10 or
any other provisions of the Plan shall be entitled to recover from the
Company any and all attorneys' fees and other costs and expenses incurred
in enforcing such provisions for his or her benefit or for the benefit of
any or all Protected Participants (or Beneficiaries of Protected
Participants).
10.7 Binding on Successors. The provisions of the Plan shall be binding
upon and shall inure to the benefit of the Company, any Related Company
that adopts the Plan, the Participants, and their respective successors
in interest and assigns, including, without limitation, the surviving
corporation in any merger or consolidation with the Company or such
Related Company and, to the extent provided in the Plan, the
Beneficiaries of the Participants. After a Material Change, except as
may otherwise be determined by a resolution of the Board of Directors of
the Company adopted prior to the occurrence of the Material Change, a
successor in interest to the Company or a Related Company that adopts the
Plan shall be deemed to have adopted the Plan and shall have all of the
liabilities and obligations of the Company or that Related Company under
the Plan. Except as may otherwise be determined by a resolution of the
Board of Directors of the Company adopted prior to the occurrence of a
Material Change, the Company shall require any person or entity that
becomes a successor in interest to the Company or a Related Company that
adopts the Plan to expressly assume the Plan and agree to perform all of
the obligations of the Company or that Related Company, as the case may
be, under the Plan. For purposes of this Section 10.7, following a
Material Change, a "successor in interest" to the Company or a Related
Company that adopts the Plan shall include, without limitation, any
person or entity (or group of related or affiliated persons or entities)
that acquires (in a single transaction or a series of related
transactions) any businesses or assets of the Company or such related
Company representing twenty-five percent (25%) or more of the Company's
or such Related Company's sales, operating profits, or operating assets.
10.8 Amendment of Section 10. Notwithstanding any other provision of the
Plan, except as may otherwise be provided in a resolution of the Board of
Directors of the Company adopted prior to the occurrence of a Material
Change, the provisions of this Section 10 may not be amended and shall
continue to apply, without amendment, in any successor plan.
8
<PAGE> 9
IN WITNESS WHEREOF, Wallace Computer Services, Inc. has caused these presents
to be executed in its name by its proper officers and its duly attested
Corporate Seal to be hereunto affixed pursuant to the authority granted by its
Board of Directors.
WALLACE COMPUTER SERVICES, INC.
By: /s/ Robert J. Cronin
---------------------------
Robert J. Cronin
President & CEO
ATTEST:
/s/ Steven L. Carson
- ---------------------------------
Steven L. Carson
Assistant Secretary
9
<PAGE> 1
Exhibit 10.2
FIRST AMENDMENT TO
WALLACE COMPUTER SERVICES, INC. BENEFIT TRUST
FIRST AMENDMENT, effective as of October 31, 1997, to WALLACE COMPUTER
SERVICES, INC. BENEFIT TRUST, made and entered into as of December 8, 1995, by
and between WALLACE COMPUTER SERVICES, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and THE NORTHERN TRUST COMPANY, as
Trustee (hereinafter referred to as "Trustee").
RECITALS
The Company and Trustee have entered into the Wallace Computer Services,
Inc. Benefit Trust (the "Agreement"), for the purposes stated therein. The
Company, with the consent of the Trustee, may amend the Agreement pursuant to
Section 9.1 thereof. The Company desires to amend the Agreement as set forth
below and the Trustee has consented thereto.
AGREEMENTS
IN CONSIDERATION OF the foregoing and the mutual undertakings described
herein, the Agreement is hereby amended as follows:
1. Section 1.5, Delivery of Funds, is amended in its entirety to read:
"Section 1.5. Delivery of Funds. (a) Concurrently with the
execution and delivery of this Agreement, the Company has delivered to the
Trustee such amount of cash, marketable securities or other property as they
may agree, to be held in the fund.
(b) The Company shall deliver to the Trustee such amount of cash,
common stock ("Company Common Stock") or other securities issued by the Company
("Company Securities") or marketable securities as the Company deems necessary,
in its sole discretion, to fund amounts of required contributions under the
Plans.
(c) Immediately after the occurrence of a Material Change, the
Company shall deliver to the Trustee, to be held in the Fund, cash, Company
Common Stock, Company Securities or marketable securities or other property
having a fair market value (or any combination thereof) equal to the amounts
which are required to be contributed by the Plans."
<PAGE> 2
2. The first paragraph of Section 1.6, The Plans, is amended in its
entirety to read:
"Section 1.6. The Plans. For purposes of this Agreement,
the term "Plans" shall refer to the plans and agreements set forth
on Schedule A hereto. At any time prior to a Material Change (as
hereinafter defined), the Company may, by written notice to the
Trustee amending Schedule A, cause additional plans or agreements
to become plans subject to this Agreement. Upon and after a
Material Change, the Company may not add any additional plans or
agreements to this Agreement, unless the Trustee consents in
writing to any such additions."
3. Article V, INVESTMENT OF FUND, is amended in its entirety to read:
"ARTICLE V
INVESTMENT OF FUND
Contributions by the Company to the Trust may be in the form
of cash, Company Common Stock, Company Securities, marketable
securities, life insurance policies or other property acceptable
to the Trustee. Assets transferred to the Trust by the Company in
the form of property other than cash shall be held by the Trustee
in kind, unless the Trustee reasonably determines that funds are
needed to make payments hereunder. Cash paid to the Trustee shall
be invested as the Trustee shall reasonably determine in
accordance with the considerations set forth in the preceding
sentence. Notwithstanding the foregoing two sentences to the
contrary, prior to the occurrence of a Material Change, the
Company may by notice to the Trustee, assume investment
responsibility for any portion of or all of the Trust Assets (and
shall be deemed to have assumed such responsibility with respect
to any Company Common Stock, Company Securities, and any insurance
policies or contracts held in the Trust) and the Trustee shall act
with respect to such assets only as directed by the Company;
provided however, that after the occurrence of a Material Change,
such notice shall be revoked and the Company shall no longer be
deemed to have assumed any such responsibility. After the
occurrence of a Material Change, the Trustee shall assume
investment responsibility of the Trust Assets, which shall be
invested to achieve stable income consistent with preservation of
capital and prudent risk taking into account the payment
obligation of the Trust. In furtherance of the preceding sentence,
after the occurrence of a Material Change, the Trustee may sell
any Assets transferred to the Trust by the Company in the form of
property other than cash. The Trustee is expressly empowered to
borrow (as directed by the Company) against the cash surrender
value of any life insurance policy for the purpose of paying
premiums on life insurance policies or for the payment of
benefits, whether or not such premiums or benefit payments are for
the benefit of the individual insured by such policy. The Company
shall have the power to reacquire part or all of the assets
<PAGE> 3
held in the Fund at any time by simultaneously substituting for it
other readily marketable property of equivalent value, net of any
estimated costs of disposition. The Trustee shall not be liable
as a result of its retaining any investment, nor for any loss to
or diminution of the Trust assets resulting from any such action."
4. Paragraph (iii) of Section 6.1, Trustee's Powers, is amended in its
entirety to read:
"(iii) to vote in person or by general or limited proxy, or
refrain from voting, any securities for any purpose in the event
that such securities shall be entitled to vote with respect to any
matter, to exercise or sell any conversion rights; to consent to
and join in or oppose any reorganization, consolidation, merger,
recapitalization, spin-off, combination or any other change in the
corporate structure of the issuer of any securities held by the
Trustee or any exchange of such securities for other securities or
cash, and in connection therewith to deposit and accept and hold
other securities or cash received therefor, provided, however,
that with respect to any Company Common Stock or Company
Securities, the Trustee shall vote or take such actions necessary
to reflect the aggregate directions of the Beneficiary with
respect to whom such securities are held, with such directions to
be provided through the mechanism substantially identical to the
mechanism then in effect for the pass-through voting of the
Company's Profit Sharing and Retirement Plan;"
4. The Trust is amended by adding Schedule A thereto in the form attached
hereto as Appendix A.
5. In all other respects, the Trust shall remain in full force and effect
in accordance with its terms.
IN WITNESS WHEREOF, the Company and the Trustee, to evidence the adoption
of this First Amendment to the Wallace Computer Services, Inc. Benefit Trust
have each caused this First Amendment to be signed by their duly authorized
officers, all as of the day and year first above written.
WALLACE COMPUTER SERVICES, INC.
ATTEST:
/s/ Steven L. Carson By: /s/ Michael J. Halloran
- ------------------------------------ ------------------------------------
Assistant Secretary Vice President and Chief Financial
Officer
ATTEST: THE NORTHERN TRUST COMPANY
/s/ M. Judith Hamilton-Godfrey By: /s/ Jacquelyn T. Brick
- ------------------------------------ ------------------------------------
Title: Vice President Title: Second Vice President
----------------------------- ---------------------------------
<PAGE> 4
APPENDIX A TO FIRST AMENDMENT
SCHEDULE A TO THE WALLACE COMPUTER SERVICES, INC. BENEFIT TRUST
List of Plans and Agreements Subject to the Trust
Pursuant to Section 1.6 of the Wallace Computer Services, Inc. Benefit
Trust, as of October 31, 1997, the following plans and agreements are subject
to the Trust:
(1) Wallace Computer Services, Inc. Deferred Compensation/Capital
Accumulation Plans, for the years 1988, 1989, 1990, 1991, 1993,
1994, 1995, 1996, 1997 and 1998.
(2) Wallace Computer Services, Inc. Supplemental Profit Sharing
Plan.
(3) Wallace Computer Services, Inc. Supplemental Retirement Plan.
(4) Wallace Computer Services, Inc. Executive Incentive Plan.
(5) Wallace Computer Services, Inc. Long-Term Performance Plan.
(6) Pension arrangement for Ross Whitney pursuant to agreement
dated October 1, 1959, as amended.
(7) Pension arrangement for John Knerr pursuant to agreement
dated January 30, 1980.
(8) Benefits payable under the Wallace Computer Services, Inc.
Retirement Plan for Outside Directors (dated November 16, 1988, as
amended by Amendment No. 1 thereto dated March 11, 1996) for William
Hagenah, Jr., Arthur C. Nielsen, Jr., William Musham, William Olson
and Fred Canning.
(9) Pension arrangement for R. Darrel Ewers pursuant to letter
agreement dated March 19, 1996.
(10) Benefits payable under the Deferred Compensation Account and
Supplemental Retirement Benefit provisions of the Employment
Agreement and Change of Control Agreement between the Company and
Robert J. Cronin dated as of July 1, 1997.
(11) Benefits payable under the Supplemental Retirement Benefits
provisions of the Fourth Amended and Restated Agreement dated
January 1, 1993, as further amended, between the Company and
Theodore Dimitriou.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 27,363
<SECURITIES> 0
<RECEIVABLES> 263,447
<ALLOWANCES> (6,981)
<INVENTORY> 124,567
<CURRENT-ASSETS> 450,813
<PP&E> 783,338
<DEPRECIATION> (331,464)
<TOTAL-ASSETS> 1,264,040
<CURRENT-LIABILITIES> 207,716
<BONDS> 437,836
0
0
<COMMON> 45,764
<OTHER-SE> 485,619
<TOTAL-LIABILITY-AND-EQUITY> 1,264,040
<SALES> 612,468
<TOTAL-REVENUES> 612,468
<CGS> 402,156
<TOTAL-COSTS> 536,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 512
<INTEREST-EXPENSE> 8,215
<INCOME-PRETAX> 69,429
<INCOME-TAX> 27,598
<INCOME-CONTINUING> 41,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,831
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.96
</TABLE>
