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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 3, 1997
WALLACE COMPUTER SERVICES, INC.
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(exact name of registrant as specified in its charter)
Delaware 1-6528 36-2515832
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2275 Cabot Drive, Lisle, Illinois 60532
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(Address of principal executive offices) (Zip Code)
(630) 588-5000
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(Registrant's telephone number, including area code)
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The undersigned Registrant hereby amends Item 7(b) of its Current Report on
Form 8-K filed on November 18, 1997 and amended on January 16, 1998:
(b) Unaudited Pro Forma Financial Statements
Introduction to pro forma condensed consolidated financial data.
The following Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the six months ended January 31, 1998 and the fiscal year ended
July 31, 1997 present unaudited pro forma operating results for Wallace
Computer Services, Inc. ("Wallace") as if the acquisition of Graphic
Industries, Inc. ("Graphic") and the other transactions described in the next
paragraph (the "Pro Forma Transactions") had occurred as of the beginning of
the periods presented. The following Unaudited Pro Forma Condensed
Consolidated Balance Sheet presents the unaudited pro forma financial condition
of Wallace as if the Pro Forma Transactions had occurred as of October 31,
1997. The excess of the purchase price of Graphic over the net identifiable
assets and liabilities of Graphic is reported as goodwill. The carrying values
of Graphic's net assets are assumed to equal their fair values for purposes of
these unaudited pro forma condensed consolidated financial statements unless
indicated otherwise in the Notes to Unaudited Pro Forma Condensed Consolidated
Financial Data. These values are subject to revision following the results of
several appraisals still pending.
The Pro Forma Transactions are: (i) the Wallace acquisition of Graphic, which
is accounted for under the purchase method of accounting; (ii) the issuance of
debt of $435 million under a new credit agreement dated as of October 31, 1997,
among Wallace, certain lenders and Bank of America NT & SA, as agent for such
lenders; and (iii) the pay down of Graphic's debt of $127 million.
As provided for in the agreement with Wallace, Graphic sold its Atlanta Blue
Print Company subsidiary to CD Acquisition Corp., a company controlled by
Carter D. Pope, President of Atlanta Blue Print Company, a Director of Graphic,
and son of Mark C. Pope, III, Chairman of Graphic. As of October 31, 1997,
Graphic recorded the sale of its Atlanta Blue Print Company subsidiary for
$7,065,000 in cash and the related loss of $5,062,000.
The pro forma financial statements also reflect the historical amounts for
certain revenues and expenses for the periods from August 1, 1996 through the
respective acquisition dates for each of the following companies acquired by
Graphic: The LithoPrint Company, Harvey Press, Inc., and Bruce Offset Company,
Inc. The impact of these acquisitions net of the pro forma impact of the
disposition of Atlanta Blue Print Company mentioned above is shown in a
separate column on the pro forma financial statements.
The unaudited pro forma condensed consolidated financial data does not reflect
any synergies expected to be realized after the Graphic acquisition (because
their realization cannot be assured). The accompanying notes to Unaudited Pro
Forma Condensed Consolidated Financial Data describe other adjustments related
to the Graphic acquisition.
THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA IS PRESENTED FOR
INFORMATIONAL PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING
RESULTS OR FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE GRAPHIC
ACQUISITION AND OTHER TRANSACTIONS DESCRIBED HEREIN BEEN CONSUMMATED AT THE
DATES INDICATED, NOR IS IT NECESSARILY INDICATIVE OF THE FUTURE OPERATING
RESULTS OR FINANCIAL POSITION OF THE COMPANY FOLLOWING THE GRAPHIC ACQUISITION.
The unaudited pro forma condensed consolidated financial data should be read in
conjunction with each of the consolidated financial statements of Wallace and
Graphic and the related notes thereto contained in (i) Wallace's Annual Report
on Form 10-K for the year ended July 31,1997, (ii) Wallace's Quarterly Report
on Form 10-Q for the quarters ended October 31, 1997 and January 31, 1998,
(iii) Graphic's audited financial statements for the year ended January 31,
1997, which are included in Form 8-K/A filed January 16, 1998, and (iv)
Graphic's interim financial statements for the nine months ended October 31,
1997, which are included herein.
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Wallace Computer Services, Inc and Subsidiaries
Pro Forma Income Statement
For the year ended July 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
Pro forma Operations Pro forma
Wallace Graphic Adjustments Adjust (l) Totals
------- ------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales 906,290 447,647 9,400 1,363,337
Cost and Expenses
Cost of goods sold 556,073 320,999 800 (j) 6,800 884,672
Selling and admin expenses 165,918 75,575 600 242,093
Provision for depreciation
and amortization 49,205 20,103 5,400 (h)(k) 200 74,908
-------- ------- ------- ------ ---------
Total costs and expenses 771,196 416,677 6,200 7,600 1,201,673
Interest income (1,876) (3,590) (400) (5,866)
Interest expense 2,619 11,012 17,400 (i) 600 31,631
-------- ------- ------- ------ ---------
Income before Income Taxes 134,351 23,548 (23,600) 1,600 135,899
Provision for Income Taxes (n) 53,069 9,301 (9,322) 632 53,680
-------- ------- ------- ------ ---------
Net Income 81,282 14,247 (14,278) 968 82,219
Net Income per share:
Primary 1.88 1.90
Fully diluted 1.86 1.88
Average common
shares outstanding 43,322 43,322
Average diluted common
shares outstanding 43,665 43,665
</TABLE>
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Pro Forma Income Statement
For the six months ended January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended October 31, 1997 Three
------------------------------------------------------------ Months
Pro forma Operations Ended Pro forma
Wallace Graphic Adjustments Adjust (l) 1/31/98 (m) Totals
-------- ------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 246,112 123,342 (5,900) 366,356 729,910
Cost and Expenses
Cost of goods sold 155,206 89,325 (800)(j) (3,400) 246,951 487,282
Selling and admin expenses 43,243 23,878 (800)(j) (2,000) 59,689 124,010
Provision for depreciation
and amortization 13,238 6,122 800 (h)(k) (300) 18,221 38,081
------- ------- ------ ------ ------- -------
Total costs and expenses 211,687 119,325 (800) (5,700) 324,861 649,373
Interest income (1,217) (229) (506) (1,952)
Interest expense 918 2,939 4,300 (i) (200) 7,296 15,253
------- ------- ------ ------ ------- -------
Income before Income Taxes 34,724 1,307 (3,500) - 34,705 67,236
Provision for Income Taxes (n) 13,716 516 (1,383) - 13,882 26,731
------- ------- ------ ------ ------- -------
Net Income 21,008 791 (2,117) - 20,823 40,505
Net Income per share:
Primary 0.49 0.48 0.94
Fully diluted 0.48 0.48 0.93
Average common
shares outstanding 43,009 43,107 43,009
Average diluted common
shares outstanding 43,471 43,632 43,471
</TABLE>
Note: Does not include loss on sale of Atlanta Blue Print Company, a
subsidiary of Graphic, in the amount of $5.062 million.
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Wallace Computer Services, Inc. and Subsidiaries
Pro Forma Balance Sheet
October 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
Pro forma
Wallace Graphic Adjustments Totals
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
- ------
Current Assets
Cash and cash equivalents 1,725 22,518 24,243
Short-term investments 1,725 3,673 5,398
Accounts receivable 185,525 95,147 (200) (e) 280,472
Less-allowance for doubtful accounts 3,880 3,433 1,400 (e) 8,713
-------- ------- ----------- ---------
Net receivables 181,645 91,714 (1,600) 271,759
Inventories 84,456 39,733 (6,400) (e) 117,789
Prepaid taxes 16,648 - 7,300 (f) 23,948
Advances and prepaid expenses 4,364 5,339 - 9,703
-------- ------- ----------- ---------
Total current assets 290,563 162,977 (700) 452,840
Property, plant and equipment, at cost 615,902 241,535 (96,800) (b) 760,637
Less-reserves for depreciation & amortization 316,485 96,028 (96,028) (b) 316,485
-------- ------- ----------- ---------
Net property, plant and equipment 299,417 145,507 (772) 444,152
Intangible assets arising from acquisitions 59,506 21,816 202,000 (g) 283,322
Cash surrender value of life insurance 40,938 152 41,090
Systems development costs 24,701 24,701
Other assets 4,655 10,663 (300) (e) 15,018
-------- ------- ----------- ---------
Total assets 719,780 341,115 200,228 1,261,123
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Notes payable 13,500 16,095 29,595
Current portion long-term debt 7,100 4,936 12,036
Accounts payable 33,267 21,551 5,556 (d)(e) 60,374
Accrued salaries, wages, profit sharing
and other 62,269 19,480 20,200 (e) 101,949
Accrued income taxes 13,300 - - 13,300
-------- ------- ----------- ---------
Total current liabilities 129,436 62,062 25,756 217,254
Long-term debt 24,500 141,520 295,400 (a) 461,420
Deferred income taxes 32,351 17,005 (400) (f) 48,956
Deferred compensation and retirement
benefits 28,401 28,401
Stockholders'equity
Common stock 45,764 1,308 (1,308) (c) 45,764
Additional capital 34,860 35,252 (35,252) (c) 34,860
Retained earnings 505,463 84,978 (84,978) (c) 505,463
Unrealized loss on securities (83) (83)
Treasury stock (80,912) (1,010) 1,010 (c) (80,912)
-------- ------- ----------- ---------
Total stockholders' equity 505,092 120,528 (120,528) 505,092
-------- ------- ----------- ---------
Total liabilities and stockholders' equity 719,780 341,115 200,228 1,261,123
</TABLE>
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PRO FORMA ADJUSTMENTS
a) The pro forma adjustment to indebtedness reflects borrowings of $308.3
million related to the financing of the Graphic acquisition net of
conversion of indentured notes of $12.9 million to equity.
b) Records the fair value adjustments for Graphic's fixed assets. Wallace
is currently awaiting the results of in process appraisals to determine if
further adjustments are needed.
c) Records the elimination of Graphic's equity accounts.
d) Records the liability of $5.5 million for legal and investment banker
fees due to the acquisition.
e) Reflects the pro forma adjustment of various balances to fair market value.
Includes changes in accounting policies to comply with those of Wallace.
The adjustment to Accrued Salaries, Wages, Profit Sharing and other
includes $6.0 million related to the adoption of Wallace's accounting
methods for accrued vacation and bonus. The remaining amount includes
reserves for known liabilities and contingencies based on due diligence.
These known liabilities include, but are not limited to, change in control
liabilities, pending litigation, environmental remediation, pending tax
related matters, pending administrative claims, pension withdrawal
liabilities, and qualified benefit plan related matters.
f) Records the deferred tax impact of the fair value adjustments.
g) Reflects the pro forma purchase price allocation to goodwill for excess
of purchase price over net assets and direct costs of the transaction,
primarily financial advisory and legal fees; and to eliminate the goodwill
of Graphic of $21.8 million as of October 31, 1997.
h) Amortization of the estimated goodwill relating to the Graphic
acquisition of $223.8 million over a 40-year period ($223.8 million/40 =
$5.6 million). The goodwill reflected on the Graphic balance sheet was
being amortized over a 40 year period at $0.5 million per year.
Accordingly, the pro forma incremental charge to goodwill is $5.1 million.
The pro forma adjustment for the 3-month period ended October 31, 1997
represents one quarter of the annual goodwill amortization from the
acquisition of Graphic less Graphic's goodwill amortization for the
quarter ended October 31, 1997.
i) Reflects the net pro forma adjustment to interest expense. The first
adjustment is to reduce the Graphic interest expense to reflect the lower
Wallace borrowing rate. Graphic's borrowing rate under their revolving
credit agreement is LIBOR plus 112.5 basis points, while Wallace's rate is
LIBOR plus 27.5 basis points (at the date of the acquisition). Using the
6 month LIBOR rate of 5.8125%, this would amount to a reduction of
interest of $1.4 million for the year ended July 31, 1997 and a reduction
of $0.4 million for the quarter ended October 31, 1997. The second
adjustment is to record the interest expense on the proceeds of the loan,
in the amount of $308.3 million, to finance the transaction. At the
current borrowing rate of 6.0875%, the incremental annual expense is $18.8
million. The impact of a 1/8% increase in the variable rate would be an
additional $0.4 million annually.
j) Reverses adjustments made in the quarter ended October 31, 1997 that are
either non-recurring or apply to a prior quarter. To the extent the
charge applies to the fiscal year ended July 31, 1997 an adjustment is
included there. These adjustments do not have a material impact on prior
quarters.
k) Adjusts depreciation expense to reflect remaining lives and fair market
value. The impact for the year ended July 31, 1997 is additional expense
of $0.3 million, and for the quarter ended October 31, 1997 is a reduction
of expense of $0.5 million.
l) Reflects the reversal of the results of operations for the Atlanta Blue
Print Company, net of the results of operations for the previously
acquired companies: The LithoPrint Company, Harvey Press, Inc., Bruce
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PRO FORMA ADJUSTMENTS (continued)
Offset Company, Inc. The amounts presented represent the historical amounts
for certain revenues and expenses for the periods from August 1, 1996 through
the respective acquisition dates for each company. The results for the asset
purchases of Presstar Printing Corporation and Graphic Technology, Inc. are
immaterial for the periods presented, and as such are not included in this
adjustment.
m) Represents second quarter ended January 31, 1998 operating results
including Wallace and Graphic.
n) Wallace effective tax rate was 39.5% for fiscal year ended July 31, 1997
and quarter ended October 31, 1997, and 40.0% for quarter ended January
31, 1998.
DETERMINATION AND ALLOCATION OF PURCHASE PRICE
The acquisition was made through an all cash purchase of Graphic's shares at
$21.75 per share. The purchase price below assumes all options are exercised
and all convertible debt will be converted to stock. Effective with the
consummation of the merger, each share was converted into the right to receive
$21.75 in cash, without interest.
Determination of Purchase Price (in thousands):
Market value of shares (including options and converted
indenture notes) $308,300
Transaction costs 5,500
--------
Pro forma purchase price $313,800
The Graphic acquisition will be accounted for as a purchase. The preliminary
allocation of the proforma purchase price by Wallace is as follows (subject to
final fixed asset appraisals, as well as other possible accrual adjustments):
Pro Forma Purchase Price Allocation (in thousands)
Cash and short-term investments $ 26,200
Accounts receivable 90,100
Inventory 33,400
Other assets 23,200
Fixed Assets 144,700
Goodwill 223,800
Other liabilities (99,000)
Long-term debt (128,600)
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Pro forma purchase price $ 313,800
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SIGNATURE
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 hereunto duly authorized.
WALLACE COMPUTER SERVICES, INC.
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(Registrant)
By: /s/ Michael J. Halloran
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Michael J. Halloran
Vice President and
Chief Financial Officer
Dated: April 6, 1998
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