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Wallace Reports Q3 Results: Margins Improve, Solutions Group Formed

Press release from the issuing company

LISLE, Ill.---June 10, 2002--Wallace, the leading national provider of comprehensive total print management products and services, today reported its third quarter pro forma financial results of $0.35 diluted earnings per share, before restructuring charges, which is consistent with management's previous estimates. Pro forma earnings for the same period last year were $0.38. Incorporating the restructuring charges of $5.4 million in the quarter, GAAP diluted earnings per share was $0.27. Revenues for the quarter were $369.2 million compared to $416.2 million for the third quarter last year. "The restructuring and cost savings initiatives implemented in previous quarters has had a positive impact on our third quarter results," said David Jones, Chairman of the Board and Chief Executive Officer. "On a sequential quarter basis, sales were down 7% but operating income increased almost 8%. Most of this margin improvement came from the Commercial Print operation which has undergone significant operational improvements under the leadership of Mike Duffield." Vicki Avril, Wallace Senior Vice President and Chief Financial Officer, stated, "The Company's continued execution of cost-cutting and restructuring initiatives was the driving force behind the Company's improved operating performance in the quarter despite the fact that operating results, particularly our revenue, were negatively impacted by the adverse economy." The Company recognized residual charges of $5.4 million in the current quarter related to the restructuring announced in the second quarter. "We have made some good strides in the current year towards completing the integration of the Commercial Print business including restructuring, management changes, new branding, equipment and process upgrades and development of a new operating strategy," said Mike Duffield, President and Chief Operating Officer. "I am pleased to see that Commercial Print operating margins have improved in the third quarter to their highest point this fiscal year." David Jones also announced two changes to better align Wallace's internal organization with its strategic direction. First, a new Business Solutions Group has been formed to provide complete organizational support and structure around existing service offerings and to develop new service solutions. Jones added, "The creation of the Business Solutions Group will enhance our ability to seamlessly offer new and existing service solutions to our customers and will strategically combine capabilities in warehousing and distribution, kitting and fulfillment, print on demand, targeted communications and contract outsourcing." Jim Kersten, a 24 year Wallace veteran with extensive experience in sales and operations, will lead the group as Vice President and will report directly to Mike Duffield. Additionally, Wallace is strengthening its corporate accounts sales efforts by naming Todd McKeown, previously Wallace's Regional Vice President of Sales in the Midwest, as the Vice President of Corporate Accounts. Todd will lead Wallace's Corporate Accounts Sales Organization which focuses entirely on large, multi-location Fortune 1000 customers. David Jones commented, "Our TPM strategy is tailor made to address the needs of large, complex organizations which require nationwide support. This change will further align our sales resources to target the large national accounts where we can add the most value." For the quarter, Wallace generated $35 million in cash from operations. On a trailing twelve-month basis, working capital as a percent of sales remained consistent with prior year balances, at 14.5%. Total debt at the end of the quarter was $221.2 million, down $25.4 million from the second quarter. Avril commented that the Company expects financial conditions to remain unchanged in the fourth quarter. The Company anticipates that diluted earnings per share in the fourth quarter will be $0.35 to $0.40 before restructuring charges, consistent with prior guidance. On June 5, the Board of Directors approved the next quarterly dividend payment at a rate of $0.165 per share.