<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
April 30, 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 43,424,121
- ---------------------------------- ------------------------------------
(Registrant's Telephone Number, (Number of Common Shares Outstanding
Including Area Code) as of May 31, 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 April 30, 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 nine months ended
April 30, 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 Nine Months Ended
April 30
----------------------------------------------------------------
% %
1998 Sales 1997 Sales
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net Sales $988,117,000 100.0 $672,038,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 659,780,000 66.8 409,969,000 61.0
Selling and administrative expenses 165,973,000 16.8 122,632,000 18.2
Provision for depreciation and
amortization 48,903,000 4.9 36,679,000 5.5
------------ ----- ------------ -----
Total costs and expenses 874,656,000 88.5 569,280,000 84.7
------------ ----- ------------ -----
Operating Income 113,461,000 11.5 102,758,000 15.3
------------ ----- ------------ -----
Interest income (2,045,000) (0.2) (1,468,000) (0.2)
Interest expense 15,817,000 1.6 1,744,000 0.3
------------ ----- ------------ -----
Income before Income Taxes 99,689,000 10.1 102,482,000 15.2
Provision for Income Taxes (Note 4) 39,702,000 4.0 40,480,000 6.0
------------ ----- ------------ -----
Net Income $ 59,987,000 6.1 $ 62,002,000 9.2
============ ==== ============ =====
Basic Earnings per Share $ 1.39 $1.43
====== =====
Fully Diluted Earnings per Share $ 1.37 $1.42
====== =====
Average Common Shares Outstanding 43,176,000 43,425,000
=========== ==========
Fully Diluted Common Shares Outstanding 43,647,000 43,810,000
=========== ==========
Dividends Declared Per Share $0.465 $0.420
====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 3
Page 3
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended April 30, 1998
Wallace Computer Services, Inc. and Subsidiaries
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
April 30
----------------------------------------------------------------
% %
1998 Sales 1997 Sales
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net Sales $375,649,000 100.0 $225,807,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 257,624,000 68.6 141,613,000 62.7
Selling and administrative expenses 63,042,000 16.8 39,469,000 17.5
Provision for depreciation and
amortization 17,443,000 4.6 12,625,000 5.6
------------ ------ ------------ ------
Total costs and expenses 338,109,000 90.0 193,707,000 85.8
------------ ------ ------------ ------
Operating Income 37,540,000 10.0 32,100,000 14.2
------------ ------ ------------ ------
Interest income (322,000) (0.1) (429,000) (0.2)
Interest expense 7,602,000 2.0 686,000 0.3
------------ ------ ------------ ------
Income before Income Taxes 30,260,000 8.1 31,843,000 14.1
Provision for Income Taxes (Note 4) 12,104,000 3.2 12,578,000 5.6
------------ ------ ------------ ------
Net Income $ 18,156,000 4.8 $ 19,265,000 8.5
============ ==== ============ ======
Basic Earnings per Share $0.42 $0.45
===== =====
Fully Diluted Earnings per Share $0.41 $0.44
===== =====
Average Common Shares Outstanding 43,421,000 43,119,000
========== ==========
Fully Diluted Common Shares Outstanding 43,886,000 43,554,000
========== ==========
Dividends Declared Per Share $0.155 $0.140
====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
Page 4
Wallace Computer Services, Inc. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
April 30, 1998 July 31, 1997
(Unaudited) (Audited)
-------------- -------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 10,789,000 $ 14,168,000
Short-term investments 0 1,706,000
Accounts receivable 275,034,000 171,059,000
Less-allowance for doubtful accounts 6,454,000 3,481,000
-------------- -------------
Net receivables 268,580,000 167,578,000
Inventories (Note 1) 128,654,000 85,150,000
Prepaid taxes 25,844,000 16,748,000
Advances and prepaid expenses 9,029,000 5,140,000
-------------- -------------
Total current assets 442,896,000 290,490,000
-------------- -------------
Property, plant and equipment, at cost 792,734,000 608,486,000
Less-reserves for depreciation and amortization 338,351,000 306,994,000
-------------- -------------
Net property, plant and equipment 454,383,000 301,492,000
-------------- -------------
Intangible assets arising from acquisitions 279,599,000 59,913,000
Cash surrender value of life insurance 48,025,000 39,845,000
Systems development costs 27,937,000 24,404,000
Other assets 6,044,000 4,298,000
-------------- -------------
Total assets $1,258,884,000 $ 720,442,000
============== =============
Liabilities and Stockholders' Equity
Current Liabilities
Current portion long-term debt $ 4,724,000 $ 7,100,000
Short-term notes payable 36,137,000 28,500,000
Accounts payable 80,131,000 49,348,000
Accrued salaries, wages, profit sharing and other 74,768,000 56,308,000
-------------- -------------
Total current liabilities 195,760,000 141,256,000
-------------- -------------
Long-term debt 432,907,000 24,500,000
Deferred income taxes 47,657,000 32,669,000
Deferred compensation and retirement benefits 30,098,000 28,829,000
Other long-term liabilities 9,361,000 0
Stockholders' equity
Common stock (Note 2)- issued shares of
45,764,054 at April 30, 1998 and July 31, 1997 45,764,000 45,764,000
Additional capital 36,971,000 34,739,000
Retained earnings 530,560,000 491,719,000
Unrealized loss on securities 0 (95,000)
Treasury stock (at cost)- 2,339,933 shares at
April 30, 1998 and 2,693,784 shares at
July 31, 1997 (70,194,000) (78,939,000)
-------------- -------------
Total stockholders' equity 543,101,000 493,188,000
-------------- -------------
Total liabilities and stockholders' equity $1,258,884,000 $ 720,442,000
============== =============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
Page 5
Wallace Computer Services, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
April 30
-------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income from operations $ 59,987,000 $ 62,002,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 48,903,000 36,679,000
Deferred taxes (3,261,000) (364,000)
(Gain)/loss on disposal of property 684,000 (27,000)
Changes in assets and liabilities
Accounts receivable (7,627,000) (17,442,000)
Inventories (13,084,000) (6,581,000)
Advances and prepaid expenses 10,717,000 (1,825,000)
Prepaid taxes (9,096,000) 0
Other assets (15,218,000) (12,933,000)
Accounts payable and other liabilities (7,155,000) (12,187,000)
Accrued income taxes (14,000) 0
Deferred compensation and retirement benefits 1,269,000 3,163,000
Realized security (gain) loss 0 5,000
--------------- ---------------
Net cash provided by operating activities 66,105,000 50,490,000
--------------- ---------------
Cash Flows from Investing Activities:
Capital expenditures (44,240,000) (30,750,000)
Purchases of short-term investments 0 (14,000,000)
Proceeds from sales of short-term investments 1,866,000 50,177,000
Proceeds from disposal of property 6,517,000 185,000
Net construction funds held by trustee 0 (96,000)
Other capital investments-acquisitions (437,830,000) (6,586,000)
--------------- ---------------
Net cash used in investing activities (473,687,000) (1,070,000)
--------------- ---------------
Cash Flows from Financing Activities:
Treasury stock transactions 9,950,000 (76,203,000)
Cash dividends paid (19,415,000) (16,835,000)
Net proceeds from issuance of short-term debt 7,637,000 20,000,000
Retirement of long-term debt (9,853,000) 0
Proceeds from issuance of long-term debt 415,884,000 0
--------------- ---------------
Net cash used in financing activities 404,203,000 (73,038,000)
--------------- ---------------
Net changes in cash and cash equivalents (3,379,000) (23,618,000)
Cash and cash equivalents at beginning of year 14,168,000 23,618,000
--------------- ---------------
Cash and cash equivalents at April 30 $ 10,789,000 $ 0
=============== ===============
Supplemental Disclosure:
Interest paid (net of interest capitalized) $ 13,925,000 $ 559,000
Income taxes paid (net of refunds received) 42,514,000 43,540,000
</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
April 30, 1998
(Unaudited)
Note 1 - Inventories
Inventories at April 30, 1998, and July 31, 1997, were as follows:
<TABLE>
<CAPTION>
April 30, 1998 July 31, 1997
-------------- -------------
<S> <C> <C>
Raw materials $ 25,983,000 $21,440,000
Work in process 24,053,000 1,426,000
Finished products 78,618,000 62,284,000
-------------- -------------
$128,654,000 $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 April 30, 1998, options to purchase 1,752,845 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 April 30, 1998. Of these shares, 2,339,933
were held in treasury as of April 30, 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 nine month period ended
April 30, 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 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 operations 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 April 30, 1998
Note 3 - Acquisition of Graphic Industries (continued)
<TABLE>
<CAPTION>
Nine months ended April 30, 1998 1997
--------------- ---------------
<S> <C> <C>
Net sales $1,105,559,000 $1,017,062,000
Net income $58,661,000 $62,921,000
Basic earnings per share $1.36 $1.45
</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 April 30, 1998, net sales increased
66.4% to $375,649,000. Graphic sales in the quarter were
$122,579,000. The quarterly increase in sales without Graphic was
12.1%. Excluding the acquisition of Moran Printing, a commercial
printer acquired in July, 1997, the increase in sales for the quarter
was 7.6%. Excluding the commercial printing segment, the Registrant
estimates that unit growth for the quarter was around 9%. For the
nine months ended April 30, 1998, net sales increased 47.0% to
$988,117,000. Before Graphic, the increase was 12.0%.
Sales to W.I.N. and Select Services customers totalled 34% of the
third quarter's sales and 50% of sales without Graphic. The later
number compares to 45% in the third quarter a year ago.
Net income for the third quarter decreased 5.8% to $18,156,000 or 42
cents per share. Graphic results for the quarter were additive by 3
cents per share, after including the impact of goodwill amortization
and interest expense. Net income for the nine month period decreased
3.2% to $59,987,000 or $1.39 per share. The Registrant expects that
the results for Graphic will be either break-even or slightly
accretive for the fiscal year ended July 31, 1998. 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 68.6% of sales for the quarter.
Without Graphic, the cost of sales was 66.9% versus 62.7% in the third
quarter of fiscal 1997. The third quarter includes a LIFO charge of
$213,000 or 0.3 cents per share versus a credit of $485,000 or 0.7
cents per share in the third quarter last year. Total LIFO charges in
the first nine months were $1,243,000 or 1.7 cents per share versus
credits of $1,456,000 or 2.0 cents per share last year. Cost of sales
in the third quarter of fiscal 1997, before LIFO effect was 62.9%. In
the second quarter of fiscal 1998, cost of sales without Graphic and
before LIFO effect increased from approximately 63% to 64.9%. Cost of
sales had trended higher due to increasing paper prices. The
Registrant had anticipated increasing selling prices in the third
quarter to pass along the paper cost increases. Uncertainty in the
paper market made passing increased costs along to the customer
difficult.
<PAGE> 8
Page 8
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended April 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
This difficulty contributed to increasing cost of sales to 66.8% in
the third quarter before Graphic and LIFO effect. Current market
conditions for paper remain unknown, but paper cost reductions may
provide some relief in the fourth quarter.
The other major factor impacting cost of sales in the third quarter
was the impact of lower margins in commodity-type sales with
non-contract customers. The margins in accounts supported by W.I.N.
and Select Services remained relatively consistent with the third
quarter in the prior year. It is in the non-contract portion of the
business where margins dropped. Had the margins been consistent with
the third quarter of the prior year in this non-contract business,
overall cost of sales would have been 65.4% before Graphic and LIFO
effect. These form sales of a commodity nature are not part of the
Registrant's long-term strategic focus. As such, the Registrant will
continue to focus on expanding the contract customer base, which is
consistent with the Registrant's Total Print Management and Integrated
Supplies Management strategies.
Selling and administration expenses for the quarter were 16.8% versus
17.5% in the third quarter of last year. For the nine months ended
April 30, the ratio to sales was 16.8% versus 18.2% last year. This
year's total includes $480,000 in the first quarter, $596,000 in the
second quarter, and $770,000 in the third quarter of Year 2000 related
programming expenses. The Registrant is expecting another $750,000 to
$800,000 in the fourth quarter of this fiscal year. Also in the
current quarter is a loss of $700,000 on the sale/leaseback of the
Registrant's former headquarters in Hillside, Illinois. The
Registrant will continue to lease the facility which houses a
commercial printing facility. 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 $17,443,000 or 4.6%
of sales versus $12,625,000 or 5.6% of sales in the third quarter a
year ago. Depreciation expense of $14,185,000 includes $3,036,000
from Graphic. The decrease from the prior quarter at Graphic was due
to final valuations and useful life determinations becoming available
during the third quarter. Overall, the total value assigned to the
Graphic property has not been adjusted. 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 each of the first three quarters of this fiscal year
related to the Moran acquisition completed in July 1997. Total
depreciation and amortization, before the impact of Graphic, increased
3.0% and is the result of continued reinvestment in capital resources
and system development.
Interest expense for the quarter increased by $6,916,000 from the same
period one year ago. The current quarter includes $6,818,000 related
to the Graphic acquisition. Interest income for the quarter decreased
by $107,000 and for the year has increased by $577,000. 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.
<PAGE> 9
Page 9
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended April 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Some of the financial ratios for the twelve months ended April 30,
1998 were: Return on Net Sales of 6.5%, Return on Average Assets of
8.2%, and Return on Equity of 15.5%. Those same ratios before adding
Graphic were: Return on Net Sales of 8.0%, Return on Average Assets of
11.2%, and Return on Equity of 15.4%.
Liquidity and Capital Resources
Working capital increased by $97,902,000 from July 31, 1997, primarily
due to the Graphic acquisition. The current ratio at April 30, 1998
was 2.3 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 ended October 31, 1997. In addition to the Credit
Facility, the Registrant has unsecured money market lines of
$125,000,000, under which $35,000,000 was borrowed at April 30, 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 April 30, 1998 since
the Registrant has the intent and ability to carry that debt
long-term. The $35,000,000 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 4.15% to 4.30%. The balance of
$13,407,000 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 44.4% of
total capitalization.
The Registrant has filed a shelf registration statement on Form S-3
with the intention of issuing debt securities. The proceeds of any
issuance will be used to reduce amounts outstanding under the Credit
Facility and for general corporate purposes.
Capital expenditures for the first nine months totalled $44,240,000,
including $17,774,000 for Graphic. For the fourth quarter of fiscal
1998, the Registrant expects to spend another $20,000,000 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 10.1% to $543,101,000 at April 30, 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.
<PAGE> 10
Page 10
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended April 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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 nine 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.
Part II Other Information
Items 1 through 4 None
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 First Amendment Credit Agreement dated June 5, 1998 among
Wallace Computer Services, Inc., Bank of America National
Trust and Savings Association, as Administrative Agent and
the other financial institutions party thereto amending the
$500,000,000 Credit Agreement dated as of October 31, 1997.
<PAGE> 11
Page 11
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended April 30, 1998
Item 6 Exhibits and Reports on Form 8-K (continued)
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
(1) A report on Form 8-K/A was filed on April 8, 1998 (amending
a report filed on November 18, 1997 and amended on January
16, 1998). The amended report contained unaudited pro forma
financial statements including, (i) condensed consolidated
statement of operations for the three months ended October
31, 1997 and three months ended January 31, 1998, 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> 12
Page 12
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended April 30, 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.
June 12, 1998 /s/ Robert J. Cronin
------------------ ----------------------------------------------
Date Robert J. Cronin
President and Chief Executive Officer
June 12, 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
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT (this "Amendment") is entered into as of June 5,
1998, among Wallace Computer Services, Inc., a Delaware corporation (the
"Company"), the several financial institutions from time to time party to the
Credit Agreement (as defined herein) (collectively, the "Banks"; individually,
a "Bank") and Bank of America National Trust and Savings Association, as agent
for the Banks (the "Administrative Agent") and as Swing Line Bank, Wachovia
Bank, N.A., as documentary agent and the various co-agents identified as such
on the signature pages hereto.
BACKGROUND
WHEREAS, the Company, the Banks and the Administrative Agent have
entered into that certain Credit Agreement dated as of October 31, 1997 (as
the same may be further amended or modified from time to time, the "Credit
Agreement") and the Loan Documents referred to in the Credit Agreement;
WHEREAS, the Company, the Banks and the Administrative Agent have
determined that the Credit Agreement should be amended in certain respects and
to make certain other changes agreed to by the parties.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined herein
shall have the meanings ascribed to such terms in the Credit Agreement.
2. Certain Amendments to Credit Agreement. The Credit Agreement is hereby
amended, effective on the date this Amendment becomes effective in accordance
with Section 4 hereof, as follows:
2.1 The definition of "Subsidiary Guarantee Agreement" set forth in
Section 1.01 of the Credit Agreement is hereby amended by deleting it in its
entirety.
2.2 Section 6.13 of the Credit Agreement is hereby amended by inserting a
period after the phrase "of the capital stock of Graphic Industries" and
deleting the remainder of the sentence.
2.3 Section 6.14 of the Credit Agreement is hereby amended by deleting it
in its entirety.
2.4 Section 7.05(c) of the Credit Agreement is hereby amended by deleting
it in its entirety and inserting the following in lieu thereof:
"(c) Indebtedness of Subsidiaries of the Company in a principal amount
not in excess of $50,000,000 in principal amount outstanding at any time,
provided, however, that
<PAGE> 2
Indebtedness of Graphic Industries and its Subsidiaries under this clause (c)
may not be in excess of $25,000,000 in principal amount outstanding at any
time; and"
2.5 Section 8.01(k) of the Credit Agreement is hereby amended by deleting
it in its entirety and inserting the following in lieu thereof:
"(k) [Intentionally Omitted]; or"
2.6 Section 10.01(f) of the Credit Agreement is hereby amended by deleting
it in its entirety and inserting the following in lieu thereof:
"(f) [Intentionally Omitted];"
2.7 Exhibit K is hereby amended by deleting it in its entirety.
2.8 The Subsidiary Guarantee Agreement entered into as of December 23,
1997, by Graphic Industries, Inc. in favor of the Administrative Agent (the
"Graphics Guarantee"), is as of the effective date of this Amendment terminated
and of no further force or effect. Each of the Banks hereby authorizes and
directs the Administrative Agent to deliver to Graphic Industries or the
Borrower any instruments, amendment or other documents in order to effect the
foregoing.
3. Conditions to Effectiveness of this Amendment. This Amendment shall
become effective upon the satisfaction of the receipt by the Administrative
Agent of duly executed counterparts of this Amendment from the Company and the
Banks and the receipt by the Administrative Agent of such other documents,
certificates, instruments or opinions as may reasonably be requested by it.
4. Certain Representations and Warranties by the Company. In order to
induce the Banks and the Administrative Agent to enter into this Amendment, the
Company represents and warrants to the Banks and the Administrative Agent that:
4.1 Authority. The Company has the right, power and capacity and has been
duly authorized and empowered by all requisite corporate and shareholder action
to enter into, execute, deliver and perform this Amendment and the Credit
Agreement as amended hereby.
4.2 Validity. This Amendment and the Credit Agreement as amended hereby
have each been duly and validly executed and delivered by the Company and
constitute its legal, valid and binding obligations, enforceable against the
Company in accordance with its respective terms, except as enforcement thereof
may be subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law or otherwise).
4.3 No Conflicts. The Company's execution, delivery and performance of
this Amendment and the Credit Agreement as amended hereby does not and will not
violate its
-2-
<PAGE> 3
Certificates of Incorporation or Bylaws, any law, rule, regulation, order,
writ, judgment, decree or award applicable to the Company or any contractual
provision to which the Company is party or to which the Company or any of its
Subsidiaries are subject.
4.4 Approvals. No authorization or approval or other action by, and no
notice to or filing or registration with, any Governmental Authority or
regulatory body (other than those which have been obtained and are in force and
effect) is required in connection with the Company's execution, delivery and
performance of this Amendment and the Credit Agreement as amended hereby.
4.5 Incorporated Representations and Warranties. All representations and
warranties contained in the Loan Documents are true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date hereof and the effective date hereof, except as
to any representations or warranties which expressly relate to an earlier date,
in which event, such representations and warranties are true as of such date.
4.6 No Defaults. No Default or Event of Default exists as of the date
hereof or will exist after giving effect to this Amendment.
5. Miscellaneous. The parties hereto hereby further agree as follows:
5.1 Expenses. The Company agrees to pay the Administrative Agent upon
demand for all reasonable expenses, including reasonable attorneys' and legal
assistants' fees (which attorneys and legal assistants may be employees of the
Administrative Agent), incurred by the Administrative Agent in connection with
the preparation, negotiation and execution of this Amendment and any document
required to be furnished therewith.
5.2 Further Assurances. Each of the parties hereto hereby agrees to do
such further acts and things and to execute, deliver and acknowledge such
additional agreements, powers and instruments as any other party hereto may
reasonably require to carry into effect the purposes of this Amendment and the
Credit Agreement as amended hereby.
5.3 Counterparts. This Amendment may be executed in one or more
counterparts, each of which, when executed and delivered, shall be deemed to be
an original and all of which counterparts, taken together, shall constitute but
one and the same document with the same force and effect as if the signatures
of all of the parties were on a single counterpart, and it shall not be
necessary in making proof of this Amendment to produce more than one such
counterpart.
5.4 Headings. Headings used in this Amendment are for convenience of
reference only and shall not affect the construction of this Amendment.
5.5 Integration. This Amendment and the Loan Documents constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof.
-3-
<PAGE> 4
5.6 Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER THE LAWS OF THE STATE OF ILLINOIS, AND FOR ALL PURPOSES SHALL BE GOVERNED
BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS AND
DECISIONS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
5.7 Binding Effect. This Amendment shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns; provided, however, that the Company may not assign or
transfer its rights, interests or obligations hereunder without the prior
written consent of the Administrative Agent and all of the Banks. Except as
expressly set forth to the contrary herein, this Amendment shall not be
construed so as to confer any right or benefit upon any Person other than the
parties to this Amendment and their respective successors and permitted
assigns.
5.8 Amendment; Waiver; Reaffirmation of Loan Documents. The parties
hereto agree and acknowledge that nothing contained in this Amendment in any
manner or respect limits or terminates any of the provisions of the Credit
Agreement or the other Loan Documents other than as expressly set forth herein
and further agree and acknowledge that the Credit Agreement and each of the
other Loan Documents remain and continue in full force and effect and are
hereby ratified and reaffirmed in all respects. No delay on the part of any
Bank or the Administrative Agent in exercising any of their respective rights,
remedies, powers and privileges under the Credit Agreement or any of the other
Loan Documents or partial or single exercise thereof, shall constitute a waiver
thereof. None of the terms and conditions of this Amendment may be changed,
waived, modified or varied in any manner, whatsoever, except in accordance with
Section 10.01 of the Credit Agreement.
5.9 Reference to and Effect on the Credit Agreement and the other Loan
Documents. Upon the effectiveness hereof, each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of
like import referring to the Credit Agreement and each reference in the other
Loan Documents to the "Credit Agreement," "thereunder," "thereof," or words of
like import referring to the Credit Agreement shall mean and be a reference to
the Credit Agreement as amended by this Amendment. The Credit Agreement shall
be deemed to be amended wherever and as necessary to reflect the foregoing
amendments.
[SIGNATURE PAGE FOLLOWS]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Company, the Administrative Agent and each Bank
have cause this Amendment to be executed and delivered by their duly authorized
officers as of the date first above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/ David A. Johanson
Title: Vice President
WALLACE COMPUTER SERVICES, INC.
By: /s/ Michael J. Halloran
Title: Vice President and Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: /s/ Rhomes Ritter
Title: Vice President
WACHOVIA BANK N.A.
By: /s/ Todd J. Engle
Title: Vice President
SUNTRUST BANK, ATLANTA
By: /s/ Shelly M. Browne
Title: Vice President
By: /s/ Margaret A. Jaketic
Title: Vice President
S-5
<PAGE> 6
NATIONSBANK, N.A.
By: /s/ Valerie C. Mills
Title: Sr. Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Suzanne D. Ergastolo
Title: Associate Underwriter
FIRST UNION NATIONAL BANK
By: /s/ Mark B. Felker
Title: Sr. Vice President
CREDIT AGRICOLE INDOSUEZ
By: /s/ Katherine L. Abbott
Title: First Vice President
By: /s/ David Bouhl
Title: Head of Corporate Banking Chicago
MELLON BANK, N.A.
By: /s/ Ryan F. Busch
Title: Assistant Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Kenneth Sweder
Title: Vice President
S-6
<PAGE> 7
THE NORTHERN TRUST COMPANY
By: /s/ Jaron Grimin
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.,
CHICAGO BRANCH
By: /s/ Hajime Watanabe
Title: Deputy General Manager
FLEET NATIONAL BANK
By: /s/ Ann M. Meade
Title: Vice President
HARRIS TRUST AND SAVINGS BANK
By: /s/ Patrick J. McDonnell
Title: Vice President
THE BANK OF NEW YORK
By: /s/ John M. Lokay, Jr.
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN
CHICAGO BRANCH
By: /s/ Walter Wolff
Title: S.V.P./Deputy General Manager
S-7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 10,789
<SECURITIES> 0
<RECEIVABLES> 275,034
<ALLOWANCES> (6,454)
<INVENTORY> 128,654
<CURRENT-ASSETS> 442,896
<PP&E> 792,734
<DEPRECIATION> (338,351)
<TOTAL-ASSETS> 1,258,884
<CURRENT-LIABILITIES> 195,760
<BONDS> 432,907
0
0
<COMMON> 45,764
<OTHER-SE> 497,337
<TOTAL-LIABILITY-AND-EQUITY> 1,258,884
<SALES> 988,117
<TOTAL-REVENUES> 988,117
<CGS> 659,780
<TOTAL-COSTS> 874,656
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 916
<INTEREST-EXPENSE> 15,817
<INCOME-PRETAX> 99,689
<INCOME-TAX> 39,702
<INCOME-CONTINUING> 59,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,987
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.37
</TABLE>
