<PAGE>
CORE STRENGTHS/NEW TECHNOLOGIES
[Logo]
WALLACE COMPUTER SERVICES, INC.
1994 Annual Report
<PAGE>
FOUNDED IN CHICAGO IN 1908 AND PUBLICLY-HELD SINCE 1961, WALLACE IS ONE OF
THE NATION'S LARGEST MANUFACTURERS AND DISTRIBUTORS OF INFORMATION MANAGEMENT
PRODUCTS, SERVICES AND SOLUTIONS.
WALLACE AT A GLANCE > OPEN
02 FINANCIAL HIGHLIGHTS
03 LETTER TO SHAREHOLDERS
07 WHY CUSTOMERS CHOOSE WALLACE
12 11-YEAR FINANCIAL SUMMARY
14 MANAGEMENT'S DISCUSSION AND ANALYSIS
17 CONSOLIDATED FINANCIAL STATEMENTS
21 NOTES TO CONSOLIDATED STATEMENTS
25 DIRECTORS AND OFFICERS
25 CORPORATE AND INVESTOR INFORMATION
<PAGE>
WALLACE COMPUTER SERVICES, INC. AT A GLANCE
<TABLE>
<CAPTION>
PRODUCTS AND SERVICES MARKET FACTORS
<S> <C>
PAPERWORK SYSTEMS
Custom business forms which are delivered Overall market expected to decline 3% per year.
as continuous tractor-fed forms, as cut sheets, Growing use of form/label combinations, bar coded forms and
and in rolls; and paper handling systems for other more complex forms.
high-speed, non-impact printing Increasing trend toward outsourcing and single sourcing of forms, supplies and
management.
Electronic technologies are expected to replace many simpler single-ply and
cut-sheet forms.
LABELS
Prime labels (product packaging), blank & Overall market is expected to grow at 8-10% per year through 1997.
pre-printed pressure-sensitive labels The range of applications and the demand for bar-coded labeling and product
(fanfold, cut-sheet and roll), thermal labels, labels is increasing.
labeling machinery, supplies, and Thermal labels are a new and fast growing segment.
label design & printing software Government labeling regulations are fueling demand.
COLORFORMS(R)
Direct mail and promotional printing, Direct mail is one of the fastest growing advertising mediums at 9-10% per
personalization/customization, bindery year.
and mailing Use of sophisticated databases for target marketing and direct mail is growing
rapidly.
COMMERCIAL PRINTING
Printed catalogs, price sheets, and directories; Commercial printing shipments are growing at 3% per year.
electronic catalogs on CD-ROMs and diskettes Increasing demand for short-run, quick turnaround printing.
Growing use of CD-ROMs and other electronic media for distributing information.
Rising demand for HMO/PPO healthcare directories.
VISIBLE COMPUTER SUPPLY(TM)
Direct mail catalogs offering computer and office Overall demand for office products is expected to remain flat.
products, accessories and supplies Volume buying by office superstores has reduced average retail prices.
Companies are consolidating purchases of office products with other items, and
with single vendors.
Companies continue to spend an average of $500 per person per year on supplies.
IMAGING SUPPLIES
Printer ribbons and paper rolls for ATM and POS POS and ATM applications are growing at 4-6% per year.
systems, office machines and computer printers Demand for quality bar codes is fueling the 23% growth rate of thermal transfer
ribbons.
Thermal transfer products are only 3% of the market today, but are expected to
be 24% by 1997.
TOPS(R)
Office products sold at retail: legal pads, The office products dealer base is shrinking.
flip charts, steno books, phone message pads Demand for office products is expected to be steady.
and stock forms Trend of resellers consolidating with vendors who have multiple product lines.
The TOPS brand is recognized by resellers and end users for value and quality.
PLATFORMS(TM)
Electronic forms software, and design and Currently only 2% of networked computers in the U.S. have electronic forms
implementation services installed.
Electronic forms installations are expected to grow 25-30% per year.
</TABLE>
<PAGE>
STRATEGIES AND GROWTH OUTLOOK
PAPERWORK SYSTEMS
We are enhancing and expanding the company's competitive advantages in this
area. These are based on unique added-value services such as W.I.N. (the
Wallace Information Network) and Select Services, systems which let customers
better manage their forms inventories and ordering. Synergies between form,
label and Colorforms products will create new information management
solutions. Wallace also has a highly-efficient order processing and
distribution system that speeds orders and delivery, while minimizing costs;
and a corporate-wide information system that provides enhanced information to
customers and company management.
LABELS
The label segment has been one of the company's fastest growing areas based
on both general demand and increasing market share. We will continue to expand
our range of products and services to meet new labeling needs and technologies
such as 2-D bar codes, thermal labeling, computer-aided printing and
individual imaging. The expertise of our sales people is also expanding and
becoming recognized by customers. We continue to develop new products and
are adding production capacity to meet our sales growth.
COLORFORMS(R)
One of Wallace's fastest growing segments since its acquisition in 1991,
Colorforms is leading the industry in new imaging technology and
capabilities, such as new high-speed duplex imaging introduced last year.
These capabilities open new applications and markets for us, and attract new
business. We are working for further penetration of this product set into our
traditional customer base. We will also expand our data manipulation and
processing capabilities to assist more sophisticated target marketing programs.
COMMERCIAL PRINTING
The company is well positioned with state-of-the-art electronic pre-press
capabilities which can feed a variety of conventional or advanced technology
printing systems. We are expanding capabilities for fast-turnaround electronic
printing. In fiscal 1994 we launched CD-ROM and electronic media production
and distribution services which offer new revenue opportunities. Healthcare
directories, which are printed in large quantities and need frequent updates,
will continue as a key opportunity.
VISIBLE COMPUTER SUPPLY(TM)
More of our large forms and labels customers that use W.I.N. are adding our
office products lines to their purchases. We will also expand use of the
Wallace direct sales force as a channel in key markets, and focus the catalog
on outside areas. At the same time, we are continually evaluating new sales
and distribution channels as alternative markets and computing venues are
established.
IMAGING SUPPLIES
Wallace is a leading manufacturer of imaging supplies. We are expanding our
product lines to furnish supplies for new machines and technologies including
laser printing, ink jet imaging and thermal printing. We are also focusing
sales and marketing efforts on the fastest growing applications such as
healthcare, retail point-of-sale and hospitality.
TOPS(R)
In fiscal 1994 we completed the transition from independent manufacturers
reps to a dedicated company salesforce. We are expanding into new sales
channels such as mass marketers and specialty retailers. Our strategy is
also to broaden product lines and develop new products for special applications.
PLATFORMS(TM)
Wallace's electronic forms products were launched in 1994. The strategy is to
offer enterprise-wide electronic forms products, services and solutions that
provide the best fit and benefits for larger corporate environments - our core
customer base. W.I.N. and Select Services have a key effect in this area too,
providing the tools to manage these more complex electronic forms across the
corporation. We will bring this new product category to our large existing
customer base. Also the unique approach and competitive advantages we offer
will attract new customers.
THE MAJORITY OF WALLACE PRODUCTS, SERVICES AND SOLUTIONS ARE SOLD TO CORPORATE
CUSTOMERS BY THE COMPANY'S DIRECT SALES FORCE. TOPS PRODUCTS ARE SOLD THROUGH
RETAIL OFFICE PRODUCTS OUTLETS. VISIBLE PRODUCTS ARE MARKETED THROUGH DIRECT
MAIL CATALOGS.
<PAGE>
FY 94
WALLACE'S SUCCESS HAS COME FROM STRENGTH IN CORE BUSINESSES AND
AN EMPHASIS ON DEVELOPING AND INTEGRATING NEW TECHNOLOGIES.
Aggressive investment in technology has produced competitive advantages and new
solutions that drove our success in 1994 and positions Wallace for future
growth.
[Graphs]
[See Appendix]
1
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Financial Highlights
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JULY 31
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
1994 1993 CHANGE
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<S> <C> <C> <C>
Net sales $ 588,173 $ 545,315 8%
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Net income before cumulative
effect of accounting changes $ 47,268 $ 41,170 15%
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Net income after cumulative
effect of accounting changes $ 47,931 $ 41,170 16%
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Net income per share $ 2.16 $ 1.84 17%
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Dividends per share $ 0.64 $ 0.58 10%
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Working capital $ 183,432 $ 157,937 16%
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Stockholders' equity $ 410,139 $ 368,146 11%
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Stockholders' equity per share $ 18.32 $ 16.69 10%
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Average common shares outstanding 22,193 22,348 (1)%
</TABLE>
2
<PAGE>
[Picture] Ted Dimitriou Bob Cronin
TO OUR SHAREHOLDERS
JULY 31, 1994 MARKED THE CLOSE OF FISCAL 1994 AND THE END OF ANOTHER RECORD
YEAR FOR THE COMPANY, ITS SHAREHOLDERS, EMPLOYEES AND CUSTOMERS. SALES,
OPERATING INCOME, NET INCOME AND EARNINGS PER SHARE ALL INCREASED STRONGLY AS
OUR CORE BUSINESS GREW AND WE TOOK A TECHNOLOGY LEADERSHIP POSITION IN THE
INDUSTRY.
ACHIEVED FINANCIAL AND OPERATING GOALS Net sales for fiscal 1994 climbed to
$588.2 million, a 7.9 percent increase over last year's $545.3 million, marking
our 33rd consecutive year of increased sales. Net income for the year was $47.9
million, a 16.4 percent increase over the $41.2 million reported in 1993.
Earnings per share rose 17.4 percent to $2.16 and the company's operating income
grew 17.6 percent.
The company's financial position continued to be solid in 1994. Working
capital increased 16.1 percent to $183.4 million, return on average equity
increased to 12.3 percent, and long-term debt was 5.4 percent of total
capitalization. Wallace had no short term debt for the 19th consecutive year.
In addition to meeting our sales and profit goals for 1994, we achieved all of
the other objectives we established a year ago:
EFFICIENCY We became more efficient throughout the company - from sales to
manufacturing to distribution - which resulted in lower operating costs.
NEW PRODUCTS We introduced products and services that brought new solutions to
customers' information management problems, and created new growth opportunities
for Wallace.
CUSTOMER VALUE Our relationships with customers became stronger as many took
advantage of our unique partnership services such as the Wallace Information
Network (W.I.N.) and Select Services.
ACQUISITIONS We made an acquisition to launch Wallace into the electronic forms
business.
3
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COMPETITIVE ADVANTAGES DROVE SALES AND EFFICIENCY BOOSTED PROFITS Wallace has a
long-standing program of aggressive reinvestment in the company for plants and
equipment, new technologies, research and development, training and customer
services. In our markets, the key to customer satisfaction is providing value
above and beyond the products themselves.
In 1994, customers recognized that Wallace offers added-value solutions and
services that are unique. This resulted in increased sales in most product
categories, and an increased percentage of business under long-term partnership
contracts. Corporate cost containment and improved efficiency added to our
profit showing last year.
MAJOR CHANGES & ACCOMPLISHMENTS IN 1994
In November 1993, the Board of Directors increased the company's dividend 10.3
percent to 64 cents per share, marking 22 consecutive years of increasing
dividends.
In the second quarter, we acquired technologies from First Electronic Forms
of Irvine, California and launched our electronic forms offerings: OPTIONS
Paperless Technology TM.
We initiated expansions and new plant constructions that will add 250,000
square feet of manufacturing space. These include a new plant in Lebanon,
Kentucky that will focus on quick turnaround and effective short run production
of forms and electronic printing; an addition to the facility in Metter, Georgia
that will expand business form manufacturing and distribution capacity in the
Southeast; and a doubling of the Wilson, North Carolina plant's capacity to
manufacture pressure-sensitive labels.
The Wallace Information Network (W.I.N.) and Select Services programs grew
substantially in fiscal 1994 as customers embraced our unique system for
managing their consumables purchases, inventories and data.
STRATEGY: THE NEXT FIVE YEARS Wallace's position will evolve as we approach the
end of the decade. We will continue to respond to changing customer needs and
apply new technologies. Our strategy is to offer THE BEST INFORMATION
MANAGEMENT PRODUCTS AND SERVICES, providing them through a solutions-based
approach.
Wallace employees FOCUS ON CUSTOMERS, listen, think, and respond to their
needs. To sharpen that focus, at the end of the fiscal year we changed the
structure of a number of our product groups to better align them with the
markets they serve.
Our strategy is to expand the COMPETITIVE ADVANTAGES that drove our
business in 1994. We are determined to be the best source of added customer
value in the industry. This will include enhancements to W.I.N. and Select
Services with new modules, extra services and expanded information. We will also
build on our distribution strengths, expand our electronic forms capabilities,
and develop new solutions to customer problems.
Aggressive REINVESTMENT in the company will continue. Through this next
fiscal year we will be rolling out the new Manufacturing Information Processing
System (MIPS) that will generate better information and decision making for
Wallace and its customers. We will also invest in manufacturing capabilities and
technologies including plant expansions, equipment and new imaging technologies,
all aimed at strengthening our core business and developing new solutions.
[Graph]
Over the last five years, Wallace has reinvested at nearly twice the rate of
the rest of the industry.
<TABLE>
<S> <C>
Wallace 7.4% of sales
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Peers* 4.1% of sales
<FN>
* Latest fiscal year data from Wallace proxy peer group.
</TABLE>
4
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ACQUISITIONS AND ALLIANCES will be an important part of our growth
strategy. Our goal will be to develop new niches or further enhance our products
and services to existing partnerships.
At the same time, we must continue building MANAGEMENT STRENGTH to provide
the leadership we will need to manage our growth. To ensure continued
shareholder value, on August 1, 1994 we adopted a new Economic Value Added
(EVA)-based executive compensation plan which further aligns management's
interests with our shareholders'.
TRANSITION FROM PAPER TO ELECTRONIC FORMS
One of the foremost issues we are asked about is the transition to electronic
forms and workflow automation, and its impact on our business. We see this as a
significant opportunity.
Our experience with customers in 1994 makes it clear that companies will
have to manage a blend of paper and electronics for a long time to come.
Wallace's strategy is to offer not only the best paper and electronic
solutions, but also the ability to integrate them in complex corporate
environments. In fiscal 1994, we introduced an electronic forms approach that is
an excellent fit for larger corporations that have a mix of different PCs,
minicomputers, mainframes, software and networking systems. In addition, W.I.N.
provides unmatched tools to meet the critical need for managing both paper and
electronic forms together in the corporate environment. Based on this, we expect
electronic forms to be a fast-growing product area for the company.
[Graph]
<TABLE>
Sales per employee continue to climb.
<S> <C>
1990 $154,400
1991 $154,200
1992 $160,400
1993 $161,900
1994 $171,000
</TABLE>
FISCAL 1995 OBJECTIVES In addition to assuring that we meet fiscal 1995 sales
and profit goals, we will strive to achieve the following objectives:
* Streamline systems and procedures to allow for productivity improvements in
all work areas.
* Deliver better ways to solve customers' information management problems
with new products, services and solutions.
* Find new, unique ways to add value for customers.
* Make alliances or acquisitions that strengthen our position within market
niches or allow for expanded relationships with existing customers.
* Review all aspects of operations to ensure that all efforts are focused on
the needs of our customer.
* Determine and implement the changes required to be the low-cost producer in
each of our markets.
Wallace concluded fiscal 1994 in a strong position. Core product sales were
up and we are well positioned for the future with real differentiation in the
marketplace, solid financial footing and the industry's best ability to apply
new technology to customer information management problems. We are optimistic
about fiscal 1995 and the years ahead. We thank our employees for their efforts
and hard work to make Wallace successful. We also thank our stockholders for
their continued support.
Sincerely,
/s/ Ted Dimitriou /s/ Bob Cronin
Ted Dimitriou Bob Cronin
Chairman of the Board President and CEO
5
<PAGE>
[Picture]
A Wallace on-site administrator using the Wallace Information Network (W.I.N.)
helps her customer compare and analyze usage trends of forms and office supplies
across the company's various regions. The management control provided by
W.I.N. brings cost saving opportunities and added-value to all the customer's
purchases from Wallace including forms, labels, office supplies, stock paper,
ribbons, and electronic forms.
6
<PAGE>
WHY DO CUSTOMERS CHOOSE WALLACE?
WALLACE MANUFACTURES AND DISTRIBUTES MANY UNIQUE AND PATENTED
INFORMATION MANAGEMENT SOLUTIONS, AS WELL AS STANDARD
AND CUSTOMIZED PRODUCTS. WHAT DIFFERENTIATES US IS THE ADDED-VALUE
THAT WE DELIVER TO THE CUSTOMER ABOVE AND BEYOND
THE PRODUCTS THEMSELVES.
W.I.N. AND SELECT SERVICES The Wallace Information Network (W.I.N.) and Select
Services are Wallace exclusives. These computer software systems give customers
dramatically improved control over their forms, labels, envelopes, ribbons and
other consumable information management supplies. W.I.N. and Select Services
help customers to quickly and easily organize, analyze, control, manage, track
and report the purchases, inventories and data for all their consumables. This
results in significant time and cost savings, better purchase decision making,
and improved control. We continue to expand and refine these services to further
enhance the value and control our customers receive.
DISTRIBUTION SERVICES Customers also utilize Wallace's efficient national
distribution system. We can distribute to thousands of customer sites quickly
and cost effectively. Customers benefit by saving on distribution and
warehousing costs, and reducing the volume handled by their internal systems.
Integral to the distribution process is Wallace's customer service system that
makes ordering faster and easier whether customers order from one central
location or many distributed sites. The system minimizes errors, reduces
shipping costs and provides simple summary billing.
7
<PAGE>
APPLICATION OF NEW TECHNOLOGIES As a result of investing back in the company at
a rate nearly twice the industry average, Wallace is a leader in applying new
technologies in manufacturing systems, printing technologies, information
systems, and product development and enhancement. For example, the application
of new printing technologies such as the high-speed duplex-imaging capability
introduced by Wallace's Colorforms group in 1994 gives direct mail marketing
customers new creative options and cost saving opportunities. In other areas,
improved manufacturing processes help speed order turnaround and save money.
Investments in development and information systems are the basis for product,
service and solution innovations such as W.I.N. and our commercial printing
group's new electronic catalog capability.
TRANSITION TO ELECTRONIC FORMS The emerging technologies for electronic forms
and workflow automation promise substantial cost saving and revenue enhancing
opportunities for all types of companies. Customers have recognized that Wallace
offers a unique approach for moving to corporate-wide electronic forms that is
fast, low-cost and low-risk. Wallace's OPTIONS Paperless Technology software and
services meet the needs of both the forms management and information systems
departments that must work together to implement this new technology. Wallace's
solutions also work across the full range of the customer's computing platforms,
from mainframes to PCs, and have an open architecture which preserves the
customer's existing base of hardware, software and network systems. Electronic
forms are more complex and difficult to manage than their paper predecessors.
This can be a daunting challenge to companies as they begin the transition.
This is another key Wallace difference. In W.I.N., customers have the critical
tool to manage electronic forms, including the ability to manage both electronic
and paper forms in one system.
PARTNER FOR OUTSOURCING OR SINGLE SOURCING Companies are recognizing that
outsourcing or single sourcing of their information management supplies offer
significant benefits including substantial cost savings, fewer vendor
relationships to manage and greater efficiency.
8
<PAGE>
[Pictures]
A mortgage company has implemented Wallace's OPTIONS Paperless Technology
electronic forms to speed-up and simplify mortgage approvals, significantly
increasing both customer satisfaction and revenues. We are leading the
industry in applying electronic forms and other new technologies to our
customers' information management problems.
9
<PAGE>
[Picture]
A Wallace sales representative helps a customer evaluate new bar code
technologies that can be applied to the company's product labels. This focus on
the customer and the ability to develop tailored information management
solutions are Wallace strengths.
10
<PAGE>
Wallace is continually working to make it as easy as possible for customers to
outsource or single source with us, maximizing the benefits and minimizing the
risks. Advantages include a full array of products and services for one-stop
shopping, efficient distribution services, superior customer service systems,
expertise and creativity in solving information management problems, and summary
billing. Customers stay in control while outsourcing many of their activities
and costs.
FOCUS ON CUSTOMERS AND SOLUTIONS Customers know that Wallace people listen,
think, and respond with real solutions to their information management problems.
The payoffs are the right solutions, more cost effective and efficient
information handling systems, and faster service. We believe that the customer
is everything, and we are continually training people throughout the company to
increase their customer focus and information management expertise. Our people
in sales, support and service work with customers in a consultative fashion, not
just to sell a product, but to find the best answer to every information
management challenge.
FINANCIAL STRENGTH Customers want to do business with someone they can count
on, someone who will be there for the long-haul. Wallace has one of the most
consistent financial records in the industry, and this financial strength is
rooted in our long-standing commitment to reinvest in our business. This
makes Wallace a stable partner who can bring cost savings, new ideas and new
solutions to our customer's business.
WE KNOW THAT OUR FUTURE SUCCESS HINGES ON CONTINUING TO ADD VALUE
THAT OUR CUSTOMERS CANNOT OBTAIN FROM ANY OTHER INFORMATION
MANAGEMENT SUPPLIES COMPANY. WE WILL CONTINUE TO EXPAND AND ENHANCE
THESE COMPETITIVE ADVANTAGES, AND INTRODUCE NEW ONES,
TO GIVE CUSTOMERS FURTHER COST SAVINGS, TIME SAVINGS AND MORE CONTROL
OVER THEIR INFORMATION MANAGEMENT.
11
<PAGE>
11 YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1993 1992 1991
OPERATIONS
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<S> <C> <C> <C> <C>
Net sales $ 588,173 $ 545,315 $ 511,572 $ 458,840
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Net income 47,931 41,170 39,455 35,009
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Net income per share 2.16 1.84 1.76 1.63
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Dividends per share .64 .58 .54 .50
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FINANCIAL CONDITION
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Total assets $ 538,592 $ 480,722 $ 467,142 $ 399,093
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Long-term debt 23,500 25,210 25,959 19,790
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Capital expenditures 34,228 31,818 33,517 40,540
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Working capital 183,432 157,937 152,246 141,390
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SIGNIFICANT RATIOS
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Net income:
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Return on net sales 8.1% 7.5% 7.7% 7.6%
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Return on average assets 9.4% 8.7% 9.1% 9.0%
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Return on average equity 12.3% 11.4% 11.9% 11.9%
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Current ratio 3.8 3.9 3.9 4.3
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Long-term debt/debt plus equity 5.4% 6.4% 6.8% 6.0%
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Book value per share $ 18.32 $ 16.69 $ 15.73 $ 14.22
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Sales per employee* $ 171.0 $ 161.9 $ 160.4 $ 154.2
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Net property, plant and equipment per employee* $ 67.7 $ 67.7 $ 70.7 $ 64.7
- - --------------------------------------------------------------------------------------------------------------------
OTHER
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Number of employees 3,530 3,350 3,386 2,993
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Number of stockholders 4,531 4,260 4,435 4,347
<FN>
*BASED ON AVERAGE NUMBER OF EMPLOYEES DURING THE FISCAL YEAR
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984
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<S> <C> <C> <C> <C> <C> <C>
$ 448,700 $ 429,008 $ 383,045 $ 340,504 $ 305,044 $ 274,595 $ 243,125
- - ------------------------------------------------------------------------------------------------------------------------
39,555 36,867 31,610 26,027 24,350 22,049 18,649
- - ------------------------------------------------------------------------------------------------------------------------
1.86 1.76 1.53 1.27 1.20 1.10 .95
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.46 .40 .33 .30 .25 .23 .20
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$ 375,203 $ 331,830 $ 291,764 $ 260,004 $ 225,349 $ 195,389 $ 157,318
- - ------------------------------------------------------------------------------------------------------------------------
20,155 20,465 20,830 21,180 14,520 14,840 7,135
- - ------------------------------------------------------------------------------------------------------------------------
49,835 30,677 24,948 30,039 27,531 24,566 14,925
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137,598 138,218 117,139 100,128 90,959 80,259 71,338
- - ------------------------------------------------------------------------------------------------------------------------
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8.8% 8.6% 8.3% 7.6% 8.0% 8.0% 7.7%
- - ------------------------------------------------------------------------------------------------------------------------
11.2% 11.8% 11.5% 10.7% 11.6% 12.5% 12.7%
- - ------------------------------------------------------------------------------------------------------------------------
15.1% 16.2% 16.1% 15.3% 16.6% 17.6% 17.6%
- - ------------------------------------------------------------------------------------------------------------------------
3.8 4.4 4.2 3.9 3.7 3.7 4.0
- - ------------------------------------------------------------------------------------------------------------------------
6.7% 7.7% 9.0% 10.4% 8.4% 9.8% 5.9%
- - ------------------------------------------------------------------------------------------------------------------------
$ 13.04 $ 11.53 $ 10.09 $ 8.83 $ 7.76 $ 6.74 $ 5.75
- - ------------------------------------------------------------------------------------------------------------------------
$ 154.4 $ 154.4 $ 145.8 $ 136.3 $ 127.7 $ 121.0 $ 115.8
- - ------------------------------------------------------------------------------------------------------------------------
$ 59.3 $ 50.3 $ 48.4 $ 46.3 $ 40.4 $ 34.4 $ 28.8
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
2,957 2,857 2,700 2,554 2,442 2,335 2,202
- - ------------------------------------------------------------------------------------------------------------------------
4,396 4,350 4,038 4,104 4,223 4,023 3,745
<FN>
NOTES TO 11 YEAR SUMMARY
A. ACQUISITIONS: Effective August 1, 1991, the company acquired MGI Industries,
Inc. and Subsidiaries and substantially all of the assets of Evergreen Realty
(collectively "Colorforms"). The acquisition price included 608,034 shares of
common stock, $13 million of cash and the assumption of debt totalling $17.5
million. This acquisition was accounted for as a purchase, and, accordingly, the
results of operations for Colorforms are included in the consolidated financial
statements from August 1, 1991.
On December 15, 1988, the company acquired Apollo Labeling Systems for
$900,000. Apollo is a manufacturer of prime pressure sensitive labels. This
acquisition was accounted for as a purchase, and, accordingly, the results of
operations for Apollo are included in the consolidated financial statements from
December 15, 1988.
B. STOCK SPLITS: All share and per share amounts have been adjusted for the 2
for 1 stock split effective August, 1989.
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1994 VERSUS FISCAL 1993 Net sales for Fiscal 1994 increased by 7.9% to
$588.2 million. Over the last five years, the company's average annual growth
rate in sales has been 6.5%. Business forms products accounted for 46% of total
sales for Fiscal years 1994 and 1993. Sales of forms products increased by 8%
between years, with the entire increase coming from unit growth.
Label products had another strong year with a sales increase of 18%, of
which approximately 2% came from higher prices and the balance from unit growth.
Prime labels, which are directly affixed to containers such as cans, bottles and
drums, had an especially good year. Government mandated labeling requirements
will continue to be a source of growth for prime labels.
Direct response printing and personalization sold through our Colorforms
division showed a sales increase of 13%. Unit growth, as measured by material
usage, exceeded the sales increase due to price deflation in this product line.
The sales increase for Fiscal 1994 came from both the traditional Colorforms
customer base and from new customers added by the direct salesforce.
The office products division markets items purchased for resale, such as
computer and office supplies, as well as items manufactured by the company, such
as ribbons, add rolls, legal pads, and standardized business forms. These
product lines account for approximately 20% of total sales, with a sales
increase during Fiscal 1994 in line with the consolidated results. Most of the
increase came from new customer contracts added by the direct salesforce.
Two product segments reported sales decreases for the year. Commercial
printing was down 6% because a large job produced in Fiscal 1993 did not repeat
in Fiscal 1994. Hardware sales were down 20% due to fewer high speed printers
being sold. These printers use our roll-handling equipment to improve their
throughput.
During Fiscal 1994, the company added new customers who benefited from our
expanded service offerings. The Wallace Information Network (W.I.N.) and Select
Services are programs that allow customers to sole source with Wallace for their
business forms, office products, labels and other information management
requirements. These software systems allow the customer to maintain control over
their supply purchases while using Wallace's nationwide warehousing,
distribution and manufacturing capabilities to reduce their costs. At July 31,
1994, ninety-four customers have either a W.I.N. or a Select Services
installation. Sales for this customer group increased by 20% during the year,
and represented in excess of 20% of consolidated sales. The company believes
that continued investment in advanced manufacturing processes and a further
expansion of functions and features which can be added to the W.I.N. and Select
Services systems, will allow Wallace to maintain or improve its recent sales
growth.
A key to the company's success is its 700-person salesforce. The company
spends considerable time and money to train its sales representatives to handle
a variety of complex products, services and solutions, which now number in
excess of 8,000. The hiring of new sales representatives and the opening of
sales offices in new cities is important to the company's continued growth. New
salespeople are hired from college campuses and are trained by Wallace
personnel. We are especially optimistic about the quality of new hires over the
past three years.
Net income after taxes increased by 16.4% to $47.9 million, an 8.1% return
on net sales. Included in this year's total is $663,000 representing the
after-tax benefit of adopting FASB No. 106 "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions", and FASB No. 109 "Accounting for
Income Taxes". Net income after taxes but before these accounting adjustments
increased by 14.8%. Over the last five years, net income before accounting
adjustments has grown at an average annual compound growth rate of 5.1%.
Earnings per share for the year were $2.16 after accounting adjustments, a 17.4%
increase over the $1.84 reported for fiscal 1993. Without the accounting
adjustments, we would have reported $2.13 per share. The effective income tax
rates were 36.0% in 1994 and 34.0% in 1993.
Operating income in Fiscal 1994 increased by 17.6%. Operating expenses for
the year increased 5.4% versus the sales increase of 7.9%. Good cost control and
improved manufacturing efficiencies kept the expense increase below the sales
increase. Cost of goods sold for Fiscal 1994 was 61.8% of sales, compared to
62.6% in 1993. Approximately 35% of this improvement came from lower material
costs with the balance due to lower labor and overhead expenses. LIFO accounting
reduced reported results for Fiscal 1994 by 2 cents per share versus a 5 cent
increase in earnings in 1993.
Selling and administrative expenses were 20.4% of Fiscal 1994 sales versus
20.6% in Fiscal 1993. The cost of the company's medical programs benefited
during the year from the expanded
[Graph]
Book Value Per Share
<TABLE>
<S> <C>
1990 $13.04
1991 $14.22
1992 $15.73
1993 $16.69
1994 $18.32
</TABLE>
[Graph]
Total Capitalization
<TABLE>
<CAPTION>
Long-Term Stockholders' Total
Debt Equity Capitalization
<S> <C> <C> <C>
1990 $20,155 $279,446 $299,601
1991 $19,790 $308,809 $328,599
1992 $25,959 $355,564 $381,523
1993 $25,210 $368,146 $393,358
1994 $23,500 $410,139 $433,639
</TABLE>
14
<PAGE>
use of managed care options by our employees. Depreciation and amortization as a
percent to sales has remained at 5.6% for the last three years. We anticipate
that this percentage will rise slightly in Fiscal 1995 due to higher
amortization of capitalized software development projects.
Investment income for Fiscal 1994 was $3.6 million versus $2.7 million last
year. The Fiscal 1993 figure included a one-time charge of $2.3 million for a
loss on the disposition of some municipal bonds. Lower interest rates during
Fiscal 1994 were the principal reason for the decline in investment earnings.
Interest income from tax-exempt bonds was $2.3 million in 1994 and $2.2 million
in 1993. Tax excludable dividends from preferred stocks were $.1 million in 1994
and $1.3 million in 1993. Interest expense for Fiscal 1994 was $2.3 million
versus $2.0 million in 1993.
In November, 1993, the company acquired the technologies of software
developer First Electronic Forms. Wallace has established the Platforms division
to further develop and market electronic forms solutions based on the acquired
technologies. Sales of electronic forms products in Fiscal 1994 were negligible.
Start-up expenses for this operation reduced earnings per share for the year by
five cents. We expect the electronic forms product line to break-even or to
report positive results for Fiscal 1995.
Paper costs have risen significantly since April, 1994. The increases bring
paper costs back to the levels in effect during November, 1993. We anticipate
that the paper companies will attempt to raise prices further during Fiscal 1995
if industry conditions warrant. Historically, the company has been able to pass
along higher paper costs. However, the increasing costs will put pressure on
operating margins until higher selling prices are realized.
FISCAL 1993 VERSUS FISCAL 1992 Net sales for Fiscal 1993 increased by 6.6% to
$545.3 million. Sales of business form products represented 46% of the Fiscal
1993 consolidated total, and sales in this product category rose 7% during the
year with approximately 2% coming from higher prices and 5% coming from unit
growth. All other product categories reported material usage increases in excess
of revenue increases. Label products again reported a strong sales increase. The
label product line provided 12% of Fiscal 1993 consolidated net sales, and an
even higher percentage of net income. Competitive pressures in Fiscal 1993 were
especially evident in the office products industry serviced by TOPS and in the
direct response market that uses the Colorforms product line. Both of these
divisions reported slight sales decreases for the year despite increased unit
shipments. The direct mail computer and office supply division reported another
increase in 1993. For the first time, sales to end users through the catalog
were less than 50% of sales for the year. The majority of sales came from
contracts generated by the direct salesforce. The commercial printing division
also had a very successful year reporting a sales increase in excess of 15%.
Net income after taxes increased by 4.3% to $41.2 million, a 7.5% return on
net sales. All product lines reported positive earnings for Fiscal 1993.
Operating income in Fiscal 1993 rose by 11.0%. Cost of goods sold for Fiscal
1993 was 62.6%, compared to 62.7% in Fiscal 1992. Despite higher paper costs, we
minimized the impact of LIFO charges by reducing the amount of expensive
specialty paper that was carried in inventory. Selling and administrative
expenses were 20.6% of Fiscal 1993 sales versus 21.0% in 1992. Changes to the
retiree medical program in the fourth quarter produced a one-time credit to
expense of $1.4 million. Depreciation and amortization as a percent to sales
remained at 5.6%. Higher depreciation charges for capital investments were
partially offset by lower amortization expense from capitalized software
development projects.
Investment income for Fiscal 1993 was significantly below the prior year's
results. During the fourth quarter, it was determined that a permanent reduction
in market value had taken place for $8.4 million of municipal bonds which were
classified as short-term investments. At July 31, 1993, a reserve of $2.3
million was established for a potential loss on disposition of these bonds. The
balance of the decrease in investment income was attributed to lower interest
rates, plus smaller investable cash balances during the year as a result of the
stock repurchase program. Interest income from tax-exempt investments was $2.2
million in 1993 and $1.6 million in 1992. Tax-excludable dividends from
preferred stock investments were $1.3 million in 1993 and $2.1 million in 1992.
Interest expense for Fiscal 1993 was $2.0 million versus $2.6 million in
1992. The effective income tax rate for both years was 34.0%.
LIQUIDITY AND CAPITAL RESOURCES Working capital at July 31, 1994 was $183.4
million, including $77.0 million of cash and short-term investments. Capital
expenditures for the year totaled $34.2 million. Over the last five years, the
company has spent $189.9 million on new plant and equipment, all but $1.1
million
[Graph]
Cash Dividends Per Share
<TABLE>
<S> <C>
1990 $.46
1991 $.50
1992 $.54
1993 $.58
1994 $.64
</TABLE>
[Graph]
Capital Expenditures and Depreciation
<TABLE>
<CAPTION>
Capital Depreciation
Expenditures
<S> <C> <C>
1990 $16,785 $49,835
1991 $20,610 $40,540
1992 $26,023 $33,517
1993 $28,543 $31,818
1994 $30,934 $34,228
</TABLE>
15
<PAGE>
of which was financed through internally generated funds. During this same five
year period, the company spent $12.1 million for the development of proprietary
software programs.
At July 31, 1994, the company was in the process of expanding the Wilson,
North Carolina plant. This expansion is expected to be completed in the spring
of 1995 at a cost of $3.2 million during Fiscal 1995. The company has also
announced plans to build a new plant in Lebanon, Kentucky and to expand the
plant in Metter, Georgia. Capital expenditures for these two projects are
estimated at $7.7 million for next year.
Long-term debt at July 31, 1994 was $23.5 million. $8.5 million represents
industrial revenue bonds issued in June, 1994 to finance the new Lebanon,
Kentucky plant. The balance of $15.0 million represents industrial revenue bonds
issued in prior years to construct the Manchester, Vermont and Covington,
Tennessee plants. $6.1 million of mortgage notes assumed as part of the
Colorforms acquisition in 1991 will be paid in Fiscal 1995 and are accordingly
classified as current liabilities.
Stockholders' equity increased by 11.4% to $410.1 million at July 31, 1994.
During the year, 332,216 shares of treasury stock repurchased in Fiscal 1993
were re-issued as part of the company's employee benefit programs. At July 31,
1994, 402,823 shares remain in treasury stock. These shares may be used for
future acquisitions or for stock purchases by employees under approved benefit
programs.
Return on average stockholders' equity was 12.2% in 1994 before accounting
adjustments. In Fiscal 1993, return on average equity was 11.4%. Book value per
share increased by 9.8% to $18.32 at July 31, 1994 from $16.69.
As shown in footnote 2, inventory levels increased by 1.2%. Lower raw
material and work-in-process inventories were offset by higher finished goods
balances. Finished goods should continue to grow in the coming years as more
customers look to Wallace to store products for them.
Capital expenditures for Fiscal 1995 are estimated to be approximately $50
million. We do not anticipate a need for additional borrowing to pay for these
expenditures or to cover our working capital requirements for the year.
COMMON STOCK Dividends were raised for the 22nd consecutive year in November,
1993 to $.64 per share, a 10.3% increase. The average number of outstanding
shares for the year was 22.2 million versus 22.3 million in Fiscal 1993.
The company's common stock is traded on the New York Stock Exchange under
the symbol WCS.
<TABLE>
<CAPTION>
QUARTERLY RESULTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1ST 2ND 3RD 4TH
(UNAUDITED) QUARTER QUARTER QUARTER QUARTER
- - -------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------
1994
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 144,510 $ 153,122 $ 141,472 $ 149,069
- - -------------------------------------------------------------------------------------------------------------------
Cost of goods sold (excluding depreciation) 90,635 95,246 85,614 91,993
- - -------------------------------------------------------------------------------------------------------------------
Operating income 16,704 19,524 17,451 17,951
- - -------------------------------------------------------------------------------------------------------------------
Income before income taxes 17,168 20,053 18,087 18,548
- - -------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 10,988 12,833 11,576 11,871
- - -------------------------------------------------------------------------------------------------------------------
Net income 11,651* 12,833 11,576 11,871
- - -------------------------------------------------------------------------------------------------------------------
Net income per share $ .53 $ .58 $ .52 $ .53
- - -------------------------------------------------------------------------------------------------------------------
1993
- - -------------------------------------------------------------------------------------------------------------------
Net sales $ 133,906 $ 138,050 $ 131,755 $ 141,604
- - -------------------------------------------------------------------------------------------------------------------
Cost of goods sold (excluding depreciation) 83,313 86,320 82,304 89,668
- - -------------------------------------------------------------------------------------------------------------------
Operating income 13,551 17,139 13,940 16,257
- - -------------------------------------------------------------------------------------------------------------------
Income before income taxes 15,065 17,623 14,660 15,031
- - -------------------------------------------------------------------------------------------------------------------
Net income 9,943 11,631 9,676 9,920
- - -------------------------------------------------------------------------------------------------------------------
Net income per share $ .44 $ .52 $ .43 $ .45
<FN>
*FIRST QUARTER RESULTS HAVE BEEN RESTATED DUE TO A FINALIZATION OF ASSUMPTIONS
USED IN THE ADOPTION OF SFAS NO. 106, RESULTING IN ADDITIONAL NET INCOME OF
$375,000.
</TABLE>
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE DIVIDENDS PAID PER SHARE
FISCAL FISCAL FISCAL FISCAL
1994 1993 1994 1993
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
QUARTER HIGH LOW HIGH LOW
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First $ 28.38 $ 23.13 $ 25.38 $ 23.13 $ .145 $ .135
- - ---------------------------------------------------------------------------------------------------------
Second 33.88 27.13 29.38 25.38 .16 .145
- - ---------------------------------------------------------------------------------------------------------
Third 36.13 32.88 28.75 25.13 .16 .145
- - ---------------------------------------------------------------------------------------------------------
Fourth 34.75 31.00 26.13 24.13 .16 .145
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
WALLACE COMPUTER SERVICES, INC. AND SUBSIDIARY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED JULY 31, 1994, 1993 and 1992 1994 1993 1992
<S> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
Net sales $ 588,173 $ 545,315 $ 511,572
- - ---------------------------------------------------------------------------------------------------------------------
Cost and expenses:
- - ---------------------------------------------------------------------------------------------------------------------
Cost of goods sold 363,488 341,605 320,524
- - ---------------------------------------------------------------------------------------------------------------------
Selling and administrative expenses 120,049 112,524 107,631
- - ---------------------------------------------------------------------------------------------------------------------
Provision for depreciation and amortization 33,006 30,299 28,580
- - ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 516,543 484,428 456,735
- - ---------------------------------------------------------------------------------------------------------------------
Operating income 71,630 60,887 54,837
- - ---------------------------------------------------------------------------------------------------------------------
Interest income (3,551) (2,688) (6,233)
- - ---------------------------------------------------------------------------------------------------------------------
Interest expense, net of capitalized interest 1,325 1,196 1,290
- - ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 73,856 62,379 59,780
- - ---------------------------------------------------------------------------------------------------------------------
Provision for income taxes: (Note 7)
- - ---------------------------------------------------------------------------------------------------------------------
Current:
- - ---------------------------------------------------------------------------------------------------------------------
Federal 21,615 17,485 13,439
- - ---------------------------------------------------------------------------------------------------------------------
State 5,028 4,261 4,043
- - ---------------------------------------------------------------------------------------------------------------------
Deferred (55) (537) 2,843
- - ---------------------------------------------------------------------------------------------------------------------
Total income taxes 26,588 21,209 20,325
- - ---------------------------------------------------------------------------------------------------------------------
Net income before cumulative effect of accounting changes $ 47,268 $ 41,170 $ 39,455
- - ---------------------------------------------------------------------------------------------------------------------
Adoption of FASB 109
(Accounting for income taxes) (Note 7) 3,955 -- --
- - ---------------------------------------------------------------------------------------------------------------------
Adoption of FASB 106, net of $1,853 of tax benefits
(Employers' accounting for postretirement benefits) (Note 8) (3,292) -- --
- - ---------------------------------------------------------------------------------------------------------------------
Net income after cumulative effect of accounting changes $ 47,931 $ 41,170 $ 39,455
- - ---------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
Income (charge) per common share:
- - ---------------------------------------------------------------------------------------------------------------------
Operations before cumulative effect of accounting changes $ 2.13 $ 1.84 $ 1.76
- - ---------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting for:
- - ---------------------------------------------------------------------------------------------------------------------
Postretirement benefits other than pensions
(net of tax benefits) (0.15) -- --
- - ---------------------------------------------------------------------------------------------------------------------
Income taxes 0.18 -- --
- - ---------------------------------------------------------------------------------------------------------------------
Net income per share $ 2.16 $ 1.84 $ 1.76
- - ---------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
17
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
WALLACE COMPUTER SERVICES, INC. AND SUBSIDIARY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED JULY 31, 1994, 1993 AND 1992 COMMON STOCK COMMON STOCK
- - ------------------------------------------------------------------------------------------------------------------------------
SHARES PAR PREFERRED ADDITIONAL RETAINED
OUTSTANDING VALUE STOCK CAPITAL EARNINGS
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1991 21,722 $ 21,722 $ -- $ 27,112 $ 259,975
- - ------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- 39,455
- - ------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.54 per share) -- -- -- -- (12,214)
- - ------------------------------------------------------------------------------------------------------------------------------
Sale of stock under employee
stock purchase plan (Note 5) 246 246 -- 4,533 --
- - ------------------------------------------------------------------------------------------------------------------------------
Stock options exercised net of
shares exchanged in lieu of cash (Note 5) 53 53 -- 868 --
- - ------------------------------------------------------------------------------------------------------------------------------
Tax benefit from early disposition by employees
of stock issued under stock option plans and
exercise of non-qualified stock options -- -- -- 366 --
- - ------------------------------------------------------------------------------------------------------------------------------
Stock issued in connection with the
Colorforms acquisitions 608 608 -- 13,392 --
- - ------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (23) (23) -- (529) --
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1992 22,606 22,606 -- 45,742 287,216
- - ------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- 41,170
- - ------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.58 per share) -- -- -- -- (12,885)
- - ------------------------------------------------------------------------------------------------------------------------------
Sale of stock under employee
stock purchase plan (Note 5) 252 252 -- 5,003 --
- - ------------------------------------------------------------------------------------------------------------------------------
Stock options exercised net of
shares exchanged in lieu of cash (Note 5) 167 167 -- 3,072 --
- - ------------------------------------------------------------------------------------------------------------------------------
Tax benefit from early disposition by employees
of stock issued under stock option plans and
exercise of non-qualified stock options -- -- -- 680 --
- - ------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (964) (964) -- (23,913) --
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1993 22,061 22,061 -- 30,584 315,501
- - ------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- 47,931
- - ------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($.64 per share) -- -- -- -- (14,239)
- - ------------------------------------------------------------------------------------------------------------------------------
Treasury shares issued through sale of stock under
employee stock purchase plan (Note 5) 236 236 -- 5,541 --
- - ------------------------------------------------------------------------------------------------------------------------------
Treasury shares issued through exercise of stock options
net of shares exchanged in lieu of cash (Note 5) 96 96 -- 1,572 --
- - ------------------------------------------------------------------------------------------------------------------------------
Tax benefit from early disposition by employees
of stock issued under stock option plans and
exercise of non-qualified stock options -- -- -- 856 --
- - ------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1994 22,393 $ 22,393 $ -- $ 38,553 $ 349,193
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
18
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
WALLACE COMPUTER SERVICES, INC. AND SUBSIDIARY
(DOLLARS IN THOUSANDS) JULY 31, 1994 AND 1993 1994 1993
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- - ------------------------------------------------------------------------------------------------
Current Assets:
- - ------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 17,587 $ 7,107
- - ------------------------------------------------------------------------------------------------
Short-term investments, at cost 59,411 39,823
- - ------------------------------------------------------------------------------------------------
Accounts receivable, less allowance for doubtful accounts
of $1,982 in 1994, and $1,849 in 1993 95,178 92,775
- - ------------------------------------------------------------------------------------------------
Inventories (Note 2) 69,543 68,690
- - ------------------------------------------------------------------------------------------------
Advances and prepaid expenses 6,507 4,709
- - ------------------------------------------------------------------------------------------------
Total current assets 248,226 213,104
- - ------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
- - ------------------------------------------------------------------------------------------------
Land and buildings 100,206 93,556
- - ------------------------------------------------------------------------------------------------
Machinery, equipment, furniture and fixtures 331,630 304,826
- - ------------------------------------------------------------------------------------------------
Leasehold improvements 408 464
- - ------------------------------------------------------------------------------------------------
Total property, plant and equipment 432,244 398,846
- - ------------------------------------------------------------------------------------------------
Less-reserves for depreciation and amortization (199,382) (170,975)
- - ------------------------------------------------------------------------------------------------
Net property, plant and equipment 232,862 227,871
- - ------------------------------------------------------------------------------------------------
Intangible assets arising from acquisitions 15,779 16,168
- - ------------------------------------------------------------------------------------------------
Cash surrender value of life insurance 21,530 18,300
- - ------------------------------------------------------------------------------------------------
Other assets 20,195 5,279
- - ------------------------------------------------------------------------------------------------
Total Assets $ 538,592 $ 480,722
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- - ------------------------------------------------------------------------------------------------
Current liabilities:
- - ------------------------------------------------------------------------------------------------
Current maturities of long-term debt $ 6,110 $ 749
- - ------------------------------------------------------------------------------------------------
Accounts payable 24,009 19,992
- - ------------------------------------------------------------------------------------------------
Dividends payable 3,583 3,199
- - ------------------------------------------------------------------------------------------------
Accrued compensation and related expenses 14,471 12,961
- - ------------------------------------------------------------------------------------------------
Other accrued expenses 4,332 6,167
- - ------------------------------------------------------------------------------------------------
Contribution to profit sharing and retirement fund (Note 4) 10,403 8,386
- - ------------------------------------------------------------------------------------------------
Federal and state income taxes 1,886 3,713
- - ------------------------------------------------------------------------------------------------
Total current liabilities 64,794 55,167
- - ------------------------------------------------------------------------------------------------
Deferred compensation and retirement benefits (Note 8) 17,976 9,961
- - ------------------------------------------------------------------------------------------------
Deferred income taxes (Note 7) 22,183 22,238
- - ------------------------------------------------------------------------------------------------
Long-term debt (Note 3) 23,500 25,210
- - ------------------------------------------------------------------------------------------------
Stockholders' equity:
- - ------------------------------------------------------------------------------------------------
Preferred stock, $50 par value, authorized 500,000 shares -- --
- - ------------------------------------------------------------------------------------------------
Common stock, $1.00 par value, authorized 50,000,000 shares 22,393 22,061
- - ------------------------------------------------------------------------------------------------
Additional capital 38,553 30,584
- - ------------------------------------------------------------------------------------------------
Retained earnings 349,193 315,501
- - ------------------------------------------------------------------------------------------------
Total stockholders' equity 410,139 368,146
- - ------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 538,592 $ 480,722
- - ------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES)
<TABLE>
<CAPTION>
WALLACE COMPUTER SERVICES, INC. AND SUBSIDIARY
(DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED JULY 31, 1994, 1993 AND 1992 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
- - ----------------------------------------------------------------------------------------------------------
Net income $ 47,268 $ 41,170 $ 39,455
- - ----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
- - ----------------------------------------------------------------------------------------------------------
Depreciation and amortization 33,006 30,299 28,580
- - ----------------------------------------------------------------------------------------------------------
Deferred taxes 3,737 (1,023) 1,335
- - ----------------------------------------------------------------------------------------------------------
(Gain) loss on disposal of property 57 (141) (99)
- - ----------------------------------------------------------------------------------------------------------
Changes in assets and liabilities, net
of effects from the purchase of Colorforms:
- - ----------------------------------------------------------------------------------------------------------
Accounts receivable (2,403) (3,582) (8,308)
- - ----------------------------------------------------------------------------------------------------------
Inventories (853) (12,652) (79)
- - ----------------------------------------------------------------------------------------------------------
Advances and prepaid expenses (1,799) 142 (1,322)
- - ----------------------------------------------------------------------------------------------------------
Other assets (9,696) (4,907) (2,683)
- - ----------------------------------------------------------------------------------------------------------
Accounts payable and other liabilities 5,708 3,684 3,260
- - ----------------------------------------------------------------------------------------------------------
Federal and state income taxes (1,827) (1,646) 2,394
- - ----------------------------------------------------------------------------------------------------------
Deferred compensation and retirement benefits 2,871 557 1,300
- - ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 76,069 51,901 63,833
- - ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
- - ----------------------------------------------------------------------------------------------------------
Capital expenditures (34,228) (31,818) (33,517)
- - ----------------------------------------------------------------------------------------------------------
Short-term investments (19,588) 4,777 (14,722)
- - ----------------------------------------------------------------------------------------------------------
Long-term investments -- -- 1,498
- - ----------------------------------------------------------------------------------------------------------
Purchase of Colorforms, net of cash deficit -- -- (14,859)
- - ----------------------------------------------------------------------------------------------------------
Proceeds from disposal of property 262 879 2,043
- - ----------------------------------------------------------------------------------------------------------
Other capital investments, including acquisitions (2,700) -- --
- - ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (56,254) (26,162) (59,557)
- - ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
- - ----------------------------------------------------------------------------------------------------------
Proceeds from issuance of common stock -- 3,919 6,066
- - ----------------------------------------------------------------------------------------------------------
Cash dividends paid (13,855) (12,738) (11,877)
- - ----------------------------------------------------------------------------------------------------------
Amounts paid on long-term debt (4,849) (709) (692)
- - ----------------------------------------------------------------------------------------------------------
Proceeds from issuance of short-term debt -- -- 7,150
- - ----------------------------------------------------------------------------------------------------------
Proceeds from issuance of long-term debt 8,500 -- --
- - ----------------------------------------------------------------------------------------------------------
Proceeds from issuance of treasury stock 8,301 5,255 --
- - ----------------------------------------------------------------------------------------------------------
Retirement of short-term and acquired debt -- -- (16,299)
- - ----------------------------------------------------------------------------------------------------------
Net construction funds held by trustee (7,432) -- --
- - ----------------------------------------------------------------------------------------------------------
Purchase of treasury stock -- (24,877) (552)
- - ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (9,335) (29,150) (16,204)
- - ----------------------------------------------------------------------------------------------------------
Net changes in cash and cash equivalents 10,480 (3,411) (11,928)
- - ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 7,107 10,518 22,446
- - ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 17,587 $ 7,107 $ 10,518
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
Supplemental disclosure:
- - ----------------------------------------------------------------------------------------------------------
Interest paid (net of interest capitalized) $ 339 $ 664 $ 542
- - ----------------------------------------------------------------------------------------------------------
Income taxes paid 25,444 22,598 16,107
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1994
1. SUMMARY OF MAJOR ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The accompanying financial statements include the accounts of the company and
its subsidiary, which is wholly owned. All significant intercompany transactions
have been eliminated.
REVENUE RECOGNITION:
Revenues from product sales and software licenses are recorded when the product
is shipped to the customer. In some instances, revenue is not recognized until
installation is complete or customer acceptance is acknowledged.
INVENTORIES:
Inventories are stated at cost which does not exceed market and include
material, labor and overhead. Cost is determined on the last-in, first-out
(LIFO) basis for certain inventories, and on the first-in, first-out (FIFO)
basis for other inventories.
DEPRECIATION:
Depreciation for financial statement purposes is computed using the
straight-line method over the estimated useful lives of the various classes of
property, plant and equipment.
-----------------------------------------------
-----------------------------------------------
Buildings 40 years
-----------------------------------------------
Building equipment 10-15 years
-----------------------------------------------
Machinery and equipment 3-10 years
-----------------------------------------------
Leasehold improvements Lease period
-----------------------------------------------
-----------------------------------------------
INTANGIBLE ASSETS:
$1,382,000 of Intangible Assets arising from Acquisitions represents the excess
of cost over net assets of a business purchased in 1962. This amount is not
being amortized since the company does not believe any reduction of continuing
value has occurred.
The excess of cost over the assigned value of the net tangible assets in
connection with the Colorforms acquisition is being amortized on a straight-line
basis over 40 years. Amortization expense for Fiscal 1994 and 1993 was $389,000.
The unamortized balance relating to the Colorforms acquisition was $14,397,000
as of July 31, 1994 and $14,786,000 as of July 31, 1993.
OTHER ASSETS:
$7,432,000 represents the unused balance of construction funds held for the
Lebanon, Kentucky plant.
The company expenses as incurred the cost of maintaining existing computer
software. Purchased software is capitalized and then amortized over periods
ranging from three to seven years. $2,700,000 of software technologies were
purchased in November, 1993 from First Electronic Forms. Amortization expense
for computer software was $1,595,000 in 1994; $1,322,000 in 1993; and $2,131,000
in 1992. The unamortized balance of capitalized computer software was $9,587,000
in 1994 and $2,738,000 in 1993.
INCOME TAXES:
The company recognizes the tax effect of transactions in the year they are
reported in the financial statements, regardless of when they are reported for
income tax purposes. The deferred income taxes are primarily due to the use of
accelerated depreciation methods for income tax purposes and deferred investment
tax credits which are amortized to income over the lives of the applicable
assets. The unamortized investment tax credit amounted to $598,000 in 1994 and
$1,316,000 in 1993.
INDUSTRY SEGMENT:
The company is engaged primarily in the computer services and supply industry.
NET INCOME PER SHARE:
Net income per share is based on the weighted average number of shares
outstanding during each year. The exercise of outstanding stock options would
not have a significant dilutive effect upon net income per share.
CASH AND CASH EQUIVALENTS:
The company invests excess cash balances in short-term securities, including
commercial paper, money market funds, and municipal bonds whose original
maturities are less than three months.
CAPITALIZED INTEREST COSTS:
Interest costs are capitalized based upon the cost of capital projects in
progress during the year. Interest costs capitalized (in thousands) for the last
three years were:
<TABLE>
<CAPTION>
INTEREST INTEREST
EXPENSE CAPITALIZED
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<S> <C> <C>
1994 $ 2,311 $ 986
- - -------------------------------------------------------------------------------
1993 1,983 787
- - -------------------------------------------------------------------------------
1992 2,622 1,332
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
Amortization expense for interest capitalized was $597,000 in 1994; $531,000 in
1993; and $426,000 in 1992.
2. INVENTORIES
Inventories (in thousands) at July 31, were as follows:
<TABLE>
<CAPTION>
1994 1993
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 22,221 $ 26,604
- - -------------------------------------------------------------------------------
Work in process 1,614 3,115
- - -------------------------------------------------------------------------------
Finished products 45,708 38,971
- - -------------------------------------------------------------------------------
$ 69,543 $ 68,690
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
At July 31, 1994 and 1993 the cost of inventories aggregating $49,474,000 and
$49,793,000 respectively, was determined on the LIFO method.
Inventories would have been $12,658,000 higher in Fiscal 1994 and
$11,941,000 higher in Fiscal 1993, if the FIFO method had been used for all
inventories.
3. FINANCING ARRANGEMENTS:
Long-term debt (in thousands) consisted of the following at July 31:
<TABLE>
<CAPTION>
1994 1993
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<S> <C> <C>
Average 3.05% adjustable industrial
revenue bonds due 2007 $ 7,000 $ 7,000
- - -------------------------------------------------------------------------------
Average 2.47% adjustable industrial
revenue bonds due 2009 8,000 8,000
- - -------------------------------------------------------------------------------
Average 2.95% adjustable industrial
revenue bonds due 2019 8,500 --
- - -------------------------------------------------------------------------------
6 3/4% industrial revenue bonds
maturing serially through 1997 -- 1,115
- - -------------------------------------------------------------------------------
7% industrial revenue bonds
maturing serially through 2004 -- 960
- - -------------------------------------------------------------------------------
7% to 7 1/8% industrial revenue bonds
maturing serially through 2004 -- 2,370
- - -------------------------------------------------------------------------------
10 1/4% promissory note due 1995 3,086 3,233
- - -------------------------------------------------------------------------------
9 3/4% industrial revenue bond
due 1995 3,000 3,157
- - -------------------------------------------------------------------------------
11 1/4% capital leases due 1994 24 124
- - -------------------------------------------------------------------------------
$ 29,610 $ 25,959
- - -------------------------------------------------------------------------------
Less-current portion 6,110 749
- - -------------------------------------------------------------------------------
$ 23,500 $ 25,210
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
Based upon the interest rates currently available to the company for borrowings
with similar terms and maturities, the fair value of the company's debt and
other financial instruments are either carried at fair value or do not
materially differ from fair value.
The industrial revenue bonds due 2007, 2009 and 2019 may be tendered at the
option of the holders on dates specified in the agreements. The company
maintains arrangements with agents to remarket any bonds tendered before the
final maturity dates. The bonds are also supported by letters of credit.
The company's financing arrangements contain certain restrictive financial
covenants. Under the most restrictive of the covenants, the company must
maintain a current ratio of at least 2 to 1, net worth of not less than $297
million and funded debt not greater than 40% of net tangible assets plus funded
debt.
Principal payments due on long-term debt during the next five years are as
follows: $6,110,000 in 1995; and $0 for 1996 through 1999.
At July 31, 1994 the company had $14,000,000 of unused short-term lines of
bank credit at the prime rate of interest. The company has agreed to maintain a
compensating balance equal to 5% for a $1,000,000 line. The balance of the
short-term credit lines are uncommitted and unsecured. There were no borrowings
under these lines in Fiscal 1994 or Fiscal 1993.
4. PROFIT SHARING AND RETIREMENT PLAN:
The company has a contributory profit sharing and retirement plan covering most
employees. Company contributions to the Plan charged to operations were
$10,403,000 in Fiscal 1994, $8,386,000 in Fiscal 1993, and $8,044,000 in Fiscal
1992.
5. STOCK OPTIONS:
The company has a 1989 stock option plan, which will expire on September 12,
1999, under which options may be granted to officers and others, except for
non-employee directors. Two types of options to purchase common stock may be
granted: Incentive Options and Non-Qualified Options. In the case of Incentive
Options, the option price may not be less than 100% of the market value of the
stock at the date of grant. For Non-Qualified Options, the grant price may not
be less than 85% of the market value; however, to date no options have been
granted at less than 100% of market value. The option price may be paid in cash
or by exchanging previously acquired company common stock with a market value
equal to the purchase price. Options become exercisable as to 40% of the shares
granted one year after grant and the remaining 60% of the shares granted become
exercisable two years after the grant. Options expire 10 years after grant.
The following table summarizes the activity under the stock option plan for
the last two years:
<TABLE>
<CAPTION>
AVERAGE
OPTION
NUMBER PRICE PER
OF SHARES SHARE
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at July 31, 1992 530,444 $ 20.75
- - -------------------------------------------------------------------------------
Granted 62,000 26.38
- - -------------------------------------------------------------------------------
Forfeited (3,700) 22.96
- - -------------------------------------------------------------------------------
Exercised (175,543) 19.75
- - -------------------------------------------------------------------------------
Outstanding at July 31, 1993 413,201 $ 21.95
- - -------------------------------------------------------------------------------
Granted 75,500 28.88
- - -------------------------------------------------------------------------------
Forfeited (5,000) 25.51
- - -------------------------------------------------------------------------------
Exercised (129,501) 20.36
- - -------------------------------------------------------------------------------
Outstanding at July 31, 1994 354,200 $ 24.02
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<CAPTION>
- - -------------------------------------------------------------------------------
JULY 31 JULY 31
1994 1993
- - -------------------------------------------------------------------------------
<S> <C> <C>
Shares available for future grants 385,976 456,476
- - -------------------------------------------------------------------------------
Shares exercisable 241,800 315,701
- - -------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
The company also has an Employee Stock Purchase Plan, adopted in 1974 and
expiring December 31, 1996, under which 4,200,000 shares of common stock were
reserved for purchase by employees through semi-annual offerings. The option
price is the lower of 85% of the market price of the shares on the commencement
date or the termination date of each offering period. Employees participate in
the plan through payroll deductions and the plan qualifies for certain tax
advantages under section 423 of the Internal Revenue Code. Options were
exercised to purchase 236,407 shares at $24.44 in Fiscal 1994, and 251,741
shares at $20.88 in Fiscal 1993. Shares issued in Fiscal 1994 and Fiscal 1993
were issued from the company's Treasury Stock. There were 442,253 shares
available at July 31, 1994 and 678,660 shares available at July 31, 1993 for
future issuance under this plan.
On September 7, 1994, the Board of Directors proposed, subject to
stockholder approval, reserving an additional 500,000 shares for future issuance
under this Plan.
6. LEASE COMMITMENTS:
Total rent expense for manufacturing facilities, sales offices and equipment
amounted to $4,907,000 in 1994, $4,900,000 in 1993, and $4,771,000 in 1992. The
minimum future rental commitments under non-cancelable lease arrangements are
$2,929,000 in 1995; $2,150,000 in 1996; $1,127,000 in 1997; $458,000 in 1998;
and $824,000 for 1999 and beyond.
7. INCOME TAXES:
Effective August 1, 1993, the company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." This standard
requires companies to apply current statutory income tax rates to deferred
assets and liabilities arising from differences in financial reporting and tax
reporting basis. The company recognized the cumulative effect of such
differences in the first quarter resulting in noncash income of $3,955,000.
The significant deferred tax assets and liabilities at July 31, 1994 and
August 1, 1993 in thousands of dollars, were as follows:
<TABLE>
<CAPTION>
JULY 31 AUGUST 1
1994 1993
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
- - -------------------------------------------------------------------------------
Accelerated depreciation $ 31,565 $ 29,478
- - -------------------------------------------------------------------------------
Other 7,812 6,696
- - -------------------------------------------------------------------------------
Total Deferred Liabilities 39,377 36,174
- - -------------------------------------------------------------------------------
Less deferred tax assets:
- - -------------------------------------------------------------------------------
Deferred compensation 3,662 2,651
- - -------------------------------------------------------------------------------
Postretirement benefits 2,151 2,259
- - -------------------------------------------------------------------------------
Inventory capitalization 2,433 2,358
- - -------------------------------------------------------------------------------
Other 5,495 5,722
- - -------------------------------------------------------------------------------
Total Deferred Assets 13,741 12,990
- - -------------------------------------------------------------------------------
Net Deferred Tax Liabilities $ 25,636 $ 23,184
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1994 1993 1992
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal
income tax rate 35.0% 34.0% 34.0%
- - -------------------------------------------------------------------------------
State and local
income taxes 4.4 4.5 4.5
- - -------------------------------------------------------------------------------
Tax exempt
interest income (1.1) (1.2) (0.9)
- - -------------------------------------------------------------------------------
Tax credits and other (2.3) (3.3) (3.6)
- - -------------------------------------------------------------------------------
Effective tax rate 36.0% 34.0% 34.0%
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
</TABLE>
8. POSTRETIREMENT BENEFITS:
All current retirees; employees at least 55 with 20 or more years of service as
of December 31, 1993; and employees between the ages of 50 and 54 who have at
least 20 years of service as of December 31, 1993, and retire before December
31, 1998; are entitled to postretirement health care coverage. These benefits
are subject to the same deductibles and co-payment provisions which apply to
active employees. All other employees who retire after December 31, 1993 will
pay 100% of their retirement medical coverage. The company may amend or change
the plan periodically.
Effective August 1, 1993, the company adopted Statement of Financial
Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This standard requires that the
expected cost of these benefits must be charged to expense during the years that
the employee renders service. In the first quarter, the company elected to
immediately recognize the transition obligation for future benefits to be paid
related to past employee services, resulting in a charge of $5,145,000 before
deferred income tax benefit ($3,292,000 after-tax).
The net-accrual basis expense for postretirement benefits during 1994 was
$431,000, which represented $40,000 for service cost, and $391,000 for interest
cost, before income tax benefits.
The liability (included in Deferred Compensation and Retirement Benefits on
the accompanying Consolidated Balance Sheet at July 31, 1994, in thousands of
dollars) for postretirement benefits is as follows:
<TABLE>
<CAPTION>
JULY 31 AUGUST 1
1994 1993
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
benefit obligations:
- - -------------------------------------------------------------------------------
Retirees $2,882 $3,314
- - -------------------------------------------------------------------------------
Fully eligible active plan participants 1,490 955
- - -------------------------------------------------------------------------------
Other active plan participants 992 876
- - -------------------------------------------------------------------------------
$5,364 $5,145*
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<FN>
*ADOPTION BALANCE WAS RESTATED DUE TO A FINALIZATION OF ASSUMPTIONS USED IN THE
ADOPTION OF SFAS NO. 106.
</TABLE>
23
<PAGE>
For financial reporting purposes, the actuarial computations assumed a discount
rate of 7.0% to determine the accumulated postretirement benefit obligation, and
an assumed health care cost trend rate of 12.35% initially, declining gradually
to 5.0% in 2017, to measure the accumulated postretirement benefit obligation.
However, a one percentage point increase in the assumed health care cost trend
would increase the annual postretirement expense by $35,000 (service cost of
$4,000 and interest cost of $31,000) and the postretirement benefit obligation
as of July 31, 1994 by $443,000.
9. INVESTMENTS IN DEBT AND EQUITY SECURITIES:
In May, 1993 the Financial Accounting Standards Board issued Statement No. 115
(SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities",
which addresses the accounting and reporting for certain investments in debt
securities and equity securities. It expands the use of fair value accounting
for those securities but retains the use of the amortized cost method for
investments in debt securities which the reporting enterprise has the positive
intent and ability to hold to maturity. The company will adopt this Statement in
the first quarter of Fiscal 1995, and estimates that the impact of adoption will
not be material to its results.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS OF WALLACE COMPUTER SERVICES, INC.
We have audited the accompanying consolidated balance sheets of Wallace
Computer Services, Inc., (a Delaware corporation) and Subsidiary as of
July 31, 1994 and 1993 and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three Fiscal Years in the
period ended July 31, 1994. These financial statements are the responsibility
of the company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wallace Computer Services,
Inc. and Subsidiary as of July 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three Fiscal years in the period
ended July 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Notes 7 and 8 to the consolidated financial statements, the
company changed its method of accounting for income taxes and post retirement
benefits effective August 1, 1993.
Arthur Andersen LLP
Chicago, Illinois
September 7, 1994
24
<PAGE>
CORPORATE AND INVESTOR INFORMATION
BOARD OF DIRECTORS
Theodore Dimitriou (E)
Chairman
Fred F. Canning (C) (E)
Retired President and Chief Operating Officer
Walgreen Co.
Robert J. Cronin (E)
President and Chief Executive Officer
Richard F. Doyle (A) (E)
Former Senior Vice President Finance and Administration
Texas Oil & Gas Corp.
R. Darrell Ewers (A) (C)
Executive Vice President
Wm. Wrigley Jr. Company
William N. Lane, III (C)
Chairman, President and
Chief Executive Officer
Lane Industries, Inc.
William E. Olsen (C)
Independent Consultant
Neele E. Stearns, Jr. (A)
President and Chief Executive Officer
CC Industries, Inc.
(A) Member of the Audit Committee
(C) Member of the Compensation Committee
(E) Member of the Executive Committee
OFFICERS
Theodore Dimitriou
Chairman of the Board
Robert J. Cronin
President and Chief Executive Officer
Michael O. Duffield
Senior Vice President Operations
Bruce D'Angelo
Vice President Corporate Sales
Michael R. Finger
Vice President, General Manager Direct Mail Division
Michael J. Halloran
Vice President, Chief Financial Officer and Secretary
Donald J. Hoffmann
Vice President Engineering and Research
Michael T. Leatherman
Vice President Management Information Services
Michael M. Mulcahy
Vice President, General Manager Colorforms Division
Wayne E. Richter
Vice President, General Manager Label Division
Michael T. Quane
Treasurer
Craig T. Boyd
Assistant Secretary
Michael T. Laudizio
Assistant Secretary
DIVISION MANAGERS
Thomas G. Brooker
Vice President, General Manager TOPS Division
Douglas W. Fitzgerald
Vice President Marketing
Thomas W. Franke
Vice President, General Manager Wallace Press Division
Joseph J. Juszak
Vice President Quality and Technical Services
Michael D. Keim
Vice President Manufacturing
Business Forms Division
Steven F. Arpaia
Vice President Colorforms Sales
James E. Kersten
Vice President Direct Sales - West
Mark D. Mindrum
Vice President Direct Sales - Midwest
Edward A. Riguardi
Vice President Direct Sales - East
Ronald D. Seavey
Vice President Direct Sales - Southeast
John W. Veenstra
Vice President, General Manager
Platforms Division
FACILITIES
HEADQUARTERS
Hillside, Illinois
BUSINESS FORM MANUFACTURING
Gastonia, North Carolina
Lebanon, Kentucky
Luray, Virginia
Manchester, Vermont
Marlin, Texas
Metter, Georgia
Osage, Iowa
San Luis Obispo, California
St. Charles, Illinois
LABEL MANUFACTURING
Brenham, Texas
Lodi, California
Streetsboro, Ohio
Wilson, North Carolina
DIRECT RESPONSE PRINTING AND PERSONALIZATION - COLORFORMS
Clinton, Illinois
Elk Grove Village, Illinois
Tonawanda, New York
OFFICE PRODUCTS MANUFACTURING - TOPS
Covington, Tennessee
Osage, Iowa
DIRECT MAIL COMPUTER AND OFFICE SUPPLY - VISIBLE COMPUTER SUPPLY
Allentown, Pennsylvania
Lodi, California
St. Charles, Illinois
COMMERCIAL PRINTING - WALLACE PRESS
Hillside, Illinois
IMAGING SUPPLIES MANUFACTURING
Brenham, Texas
ELECTRONIC PRINTING
Elk Grove Village, Illinois
Lebanon, Kentucky
HARDWARE SYSTEMS - LASERMAX AND BUSINESS DATA
Elk Grove Village, Illinois
ELECTRONIC FORMS - PLATFORMS
Elk Grove Village, Illinois
Irvine, California
DISTRIBUTION CENTERS
Allentown, Pennsylvania
Lodi, California
St. Charles, Illinois
MARKETING AND ADMINISTRATIVE CENTERS
Elk Grove Village, Illinois
Hillside, Illinois
St. Charles, Illinois
Wheeling, Illinois
RESEARCH AND DEVELOPMENT CENTER
Bellwood, Illinois
SALES OFFICES
Nationwide
CORPORATE INFORMATION
GENERAL COUNSEL
Butler, Rubin, Saltarelli & Boyd
Chicago, Illinois
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust
Boston, Massachusetts
AUDITORS
Arthur Andersen LLP
Chicago, Illinois
COMMON STOCK
The common shares of Wallace Computer Services are traded on the New York Stock
Exchange under the symbol WCS. Daily market activity can be found under the
stock table listing WallaceCS in daily newspapers.
ANNUAL MEETING
The annual meeting will be held on Wednesday, November 9, 1994 at the corporate
headquarters in Hillside, Illinois. Proxy materials, including a discussion of
matters to be voted upon, are included with this report. All stockholders are
cordially invited to attend.
ANNUAL REPORT TO THE S.E.C. ON FORM 10-K
Reports to the S.E.C. on Forms 10-K and 10-Q are available by writing to the
Corporate Secretary.
PRODUCT INFORMATION
For information on Wallace's information management products, services and
solutions, or the phone number of a Wallace sales office in your area, please
call or write to the Marketing Department at corporate headquarters in Hillside:
800/323-8447.
<PAGE>
[Logo]
WALLACE COMPUTED SERVICES, INC.
CORPORATE OFFICES
4600 West Roosevelt Road
Hillside, Illinois 60162
(312)626.2000 (708)449.8600
<PAGE>
APPENDIX
Cover: Photos of a paper clip and a CD-ROM disk.
Page 1 Graphs showing 30 year history of Sales, Earnings Per Share,
and Dividends Per Share.
Page 3 Photo of Chairman Ted Dimitriou and President Bob Cronin.
Page 6 Photo of woman working on W.I.N. software on a PC.
Page 9 First photo close up of a hand signing a mortgage application.
Second photo of a PC screen showing mortgage application
information.
Page 10 Close up photo of hands holding a new type of bar coded label.
