SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
April 30, 1996 1-6528
- -------------------------------------------- --------------------------------
For the quarterly period ended Commission file number
WALLACE COMPUTER SERVICES, INC
----------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2515832
- --------------------------------------- --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4600 W. Roosevelt Road, Hillside, Illinois 60162
------------------------------------------------- --------------------
(Address of Principal Executive Offices) (ZIP CODE)
(312) 626-2000 22,878,894
- -------------------------------------- ---------------------------------------
(Registrant's Telephone Number, (Number of Common Shares Outstanding
Including Area Code) as of May 31, 1996)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
------- -------
<PAGE>
Wallace Computer Services, Inc. Page 2
FORM 10-Q
For Quarterly Period Ended April 30, 1996
Part I Financial Information
Item 1. Financial Statements
- --------------------------------------
The information furnished herein reflects all adjustments which are,
in the opinion of management, necessary to a fair statement of the
results of operations and financial position for the nine months ended
April 30, 1996, subject to year-end audit by independent public
accountants. These adjustments are of a normal, recurring nature.
Wallace Computer Services, Inc. and Subsidiary
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
April 30
----------------------------------------
% %
1996 Sales 1995 Sales
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Net Sales $647,745,000 100.0 $514,637,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 406,648,000 62.8 328,070,000 63.7
Selling and administrative expenses 112,915,000 17.4 98,607,000 19.2
Provision for depreciation and
amortization 33,280,000 5.1 27,245,000 5.3
Hostile takeover expenses (Note 5) 8,683,000 1.3 0 0.0
------------ ----- ------------ -----
Total costs and expenses $561,526,000 86.7 $453,922,000 88.2
------------ ----- ------------ -----
Operating Income 86,219,000 13.3 60,715,000 11.8
------------ ----- ------------ -----
Interest income (1,995,000) (0.3) (2,747,000) (0.5)
Interest expense 955,000 0.1 1,030,000 0.2
------------ ----- ------------ -----
Income before Income Taxes 87,259,000 13.5 62,432,000 12.1
Provision for Income Taxes (Note 4) 33,460,000 5.2 22,902,000 4.4
------------ ----- ------------ -----
Net Income $53,799,000 8.3 $39,530,000 7.7
============ ===== ============ =====
Net Income per Share $2.36 $1.76
===== =====
Average Common Shares Outstanding 22,773,000 22,457,000
========== =========
Dividends Declared Per Share $0.645 $0.555
====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. Page 3
FORM 10-Q
For Quarterly Period Ended April 30, 1996
Wallace Computer Services, Inc. and Subsidiary
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
April 30
----------------------------------------
% %
1996 Sales 1995 Sales
------------ ----- ------------ -----
<S> <C> <C> <C> <C>
Net Sales $213,762,000 100.0 $180,119,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 133,781,000 62.6 112,755,000 62.6
Selling and administrative expenses 38,233,000 17.9 35,433,000 19.7
Provision for depreciation and
amortization 11,781,000 5.5 9,421,000 5.2
Hostile takeover expenses (Note 5) 1,772,000 .8 0 0.0
------------ ----- ------------ -----
Total costs and expenses $185,567,000 86.8 $157,609,000 87.5
------------ ----- ------------ -----
Operating Income 28,195,000 13.2 22,510,000 12.5
------------ ----- ------------ -----
Interest income (582,000) (0.3) (763,000) (0.4)
Interest expense 402,000 0.2 336,000 0.2
------------ ----- ------------ -----
Income before Income Taxes 28,375,000 13.3 22,937,000 12.7
Provision for Income Taxes (Note 4) 10,924,000 5.1 8,487,000 4.7
------------ ----- ------------ -----
Net Income $17,451,000 8.2 $14,450,000 8.0
============ ===== ============ =====
Net Income per Share $0.76 $0.64
===== =====
Average Common Shares Outstanding 22,860,000 22,534,000
========== ==========
Dividends Declared Per Share $0.215 $0.185
====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 4
Consolidated Balance Sheet
<TABLE>
<CAPTION>
April 30, 1996 July 31, 1995
(Unaudited) (Audited)
-------------- -------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $14,211,000 $10,815,000
Short-term Investments (Note 3) 23,768,000 30,242,000
Accounts Receivable 145,900,000 130,036,000
Less-Allowance for Doubtful Accounts 3,145,000 2,671,000
------------ ------------
Net Receivables 142,755,000 127,365,000
Inventories (Note 1) 80,432,000 79,523,000
Advances and Prepaid Expenses 18,607,000 10,927,000
------------ ------------
Total Current Assets 279,773,000 258,872,000
------------ ------------
Property, Plant and Equipment, at Cost 544,693,000 487,207,000
Less-Reserves for Depreciation and Amortization 258,637,000 230,691,000
------------ ------------
Net Property, Plant and Equipment 286,056,000 256,516,000
------------ ------------
Intangible Assets Arising from Acquisitions 43,475,000 26,575,000
Cash Surrender Value of Life Insurance 31,850,000 26,836,000
Systems Development Costs 20,895,000 15,253,000
Other Assets 5,349,000 8,650,000
------------ ------------
Total Assets $667,398,000 $592,702,000
============ ============
Liabilities and Stockholders' Equity
Current Portion of Long-Term Debt $0 $205,000
Accounts Payable 37,407,000 24,209,000
Accrued Salaries, Wages, Profit Sharing and Other 44,932,000 41,308,000
------------ -----------
Total Current Liabilities 82,339,000 65,722,000
------------ -----------
Long-Term Debt 30,600,000 25,600,000
Deferred Income Taxes 30,276,000 24,095,000
Deferred Compensation and Retirement Benefits 23,665,000 21,167,000
Stockholders' Equity
Common Stock (Note 2)
Outstanding-22,875,775 shares at
April 30, 1996 and 22,689,563 shares
at July 31, 1995 22,876,000 22,689,000
Additional Capital 50,995,000 45,800,000
Retained Earnings 426,888,000 387,810,000
Unrealized Loss on Securities (Note 3) (241,000) (181,000)
------------ ------------
Total Stockholders' Equity 500,518,000 456,118,000
------------ ------------
Total Liabilities and Stockholders' Equity $667,398,000 $592,702,000
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 5
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended April 30
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income from operations $53,799,000 $39,530,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 33,280,000 27,245,000
Deferred taxes 3,464,000 (107,000)
(Gain)/loss on disposal of property (34,000) 15,000
Changes in assets and liabilities
Accounts receivable (7,700,000) (27,161,000)
Inventories (4,280,000) (12,953,000)
Advances and prepaid expenses (3,259,000) (831,000)
Other assets (13,859,000) (11,527,000)
Accounts payable and other liabilities 10,974,000 10,197,000
Accrued income taxes (2,056,000) (985,000)
Deferred compensation and retirement benefits 2,498,000 2,940,000
----------- -----------
Net cash provided by operating activities 72,827,000 26,363,000
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (46,180,000) (38,364,000)
Short-term investments 6,474,000 25,574,000
Proceeds from disposal of property 159,000 23,000
Unrealized loss on securities (Note 3) (60,000) (169,000)
Purchase of Lampro Graphics and R&S Label Corp 0 (17,017,000)
Purchase of FEC (34,807,000) 0
Sale of Lasermax 5,641,000 0
----------- -----------
Net cash used in investing activities (68,773,000) (29,953,000)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of common and treasury
stock 5,382,000 3,330,000
Cash dividends paid (14,000,000) (11,896,000)
Amounts paid on long-term debt (205,000) (3,144,000)
Proceeds from issuance of short-term debt 4,216,000 4,829,000
Proceeds from issuance of long-term debt 5,000,000 2,100,000
Retirement of short-term and acquired debt (4,216,000) (6,474,000)
Proceeds from construction funds held by trustee 3,165,000 1,340,000
----------- -----------
Net cash used in financing activities (658,000) (9,915,000)
----------- -----------
Net changes in cash and cash equivalents 3,396,000 (13,505,000)
Cash and cash equivalents at beginning of year 10,815,000 17,587,000
----------- -----------
Cash and cash equivalents at April 30 $14,211,000 $4,082,000
=========== ===========
Supplemental Disclosure:
Interest paid (net of interest capitalized) $(172,000) $302,000
Income taxes paid (net of refunds received) 35,600,000 25,204,000
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 6
Notes to Consolidated Financial Statements
April 30, 1996
(Unaudited)
Note 1 - Inventories
Inventories at April 30, 1996, and July 31, 1995, were as follows:
<TABLE>
<CAPTION>
April 30, 1996 July 31, 1995
-------------- -------------
<S> <C> <C>
Raw materials $23,495,000 $25,981,000
Work in process 2,292,000 2,060,000
Finished products 54,645,000 51,482,000
-------------- -------------
$80,432,000 $79,523,000
============== =============
</TABLE>
Certain inventories are stated on the last-in, first-out (LIFO) basis
for their labor and material content, and other inventories are stated
on the first-in, first-out (FIFO) basis.
Because the inventory determination under the LIFO method can only be made
at the end of each fiscal year based on the inventory levels and costs
at that time, interim period LIFO determinations must necessarily be
based upon management's estimates of expected year-end inventory levels
and costs.
Note 2 - Stock Options
As of April 30, 1996, options to purchase 465,830 shares of common
stock were outstanding and 726,541 shares of common stock were available
for future grants under the Company's Stock Option and Employee Stock
Purchase Plans.
The Company has authorized 50,000,000 shares of common stock and has
issued 22,875,775 as of April 30, 1996. Of these shares, 986,780 have
been repurchased and 986,780 have been reissued under the Employee Stock
Purchase Plan and through the exercise of stock options. The number of
shares held in treasury at April 30, 1996 is 0. At July 31, 1995,
22,796,176 shares had been issued of which 986,780 had been repurchased
and 880,167 have been reissued. The number of shares held in treasury
at July 31, 1995 was 106,613.
Note 3 - Changes in Accounting
Effective August 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." . The adoption of this
statement had no impact on net income, but decreased shareholders'
equity by $181,000 at July 31, 1995,and by $241,000 at April 30, 1996
(net of tax).
<PAGE>
Wallace Computer Services, Inc. Page 7
FORM 10-Q
For Quarterly Period Ended April 30, 1996
Note 3 - Accounting Change (continued)
The amortized cost and market value of investments as of July 31, 1995,
and as of April 30, 1996 were as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Holding Market
July 31, 1995 Cost Gains Losses Value
- ------------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C>
Available-for-Sale
State, Municipal
& Other Govt Debt $21,293,000 $113,000 $23,000 $21,383,000
Equity 9,251,000 0 392,000 8,859,000
Held-to-Maturity
State, Municipal
& Other Govt Debt 0 0 0 0
----------- -------- -------- -----------
Total Short-term Investments $30,544,000 $113,000 $415,000 $30,242,000
=========== ======== ======== ===========
Long-term Available-for-Sale
Equity $1,992,000 $0 $0 $1,992,000
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Amortized Unrealized Holding Market
April 30, 1996 Cost Gains Losses Value
- -------------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C>
Available-for-Sale
State, Municipal
& Other Govt Debt $60,000 $0 $23,000 $37,000
Equity 24,109,000 0 378,000 23,731,000
Held-to-Maturity
State, Municipal
& Other Govt Debt 0 0 0 0
----------- --------- -------- -----------
Total Short-term Investments $24,169,000 $0 $401,000 $23,768,000
=========== ========= ======== ===========
Long-term Available-for-Sale
Equity $1,917,000 $0 $0 $1,917,000
=========== ========= ======== ===========
</TABLE>
Maturities for all debt securities classified as short-term are less
than one year. The long-term investment is included in the 'Other
Assets' section of the balance sheet.
In the nine months ended April 30, 1996, proceeds on the sale of
available-for-sale securities were $23,323,000, with gross realized
losses of $107,000. The amortized cost of these securities was based on
specific identification. No securities during the period were classified
as trading securities. The change in net unrealized loss on available-for-
sale securities from July 31, 1995 to April 30, 1996 was $60,000 (net of
tax).
There have been no sales of held-to-maturity securities other than at
their maturity date.
<PAGE>
Wallace Computer Services, Inc. Page 8
FORM 10-Q
For Quarterly Period Ended April 30, 1996
Note 4 - Income Taxes
Effective August 1, 1995, the Company increased its effective tax rate
from 37% to 38%. Effective November 1, 1995, the Company again increased
its effective tax rate from 38% to 38.5%. These changes were primarily
due to a reduction in tax-free investment income. The income tax rate
for the first three quarters of fiscal 1995 was 36.7%.
Note 5 - Hostile Takeover Expense Commitments
Included in hostile takeover expenses is $1,500,000 for the quarter and
$6,500,000 for the nine months ended April 30, 1996 related to a letter
agreement with Goldman Sachs & Co. ("Goldman Sachs") dated July 30, 1995.
Pursuant to the letter agreement (the "Letter Agreement"), the company
has retained Goldman Sachs as financial advisor with respect to the
unsolicited tender offer from FRDK, Inc., a wholly owned subsidiary of
Moore Corporation Limited, (the "Offer") and certain other possible
transactions. Pursuant to the Letter Agreement, the Company has agreed
to pay: (a) a fee of $500,000, payable on the date of the Letter Agreement
(which amount has been paid and is creditable against any fees payable
under clause (b), (c) or (d) below); (b) if 15% or more of the
outstanding stock of the Company is acquired by Moore or any other
person or group (including the Company), in one or a series of
transactions, or if all or substantially all of the assets of the Company
are transferred, in one or a series of transactions, by way of a sale,
distribution or liquidation, a fee equal to 0.62% of the aggregate value
of all such transactions (in the event at least 50% of the outstanding
stock of the Company is acquired by Moore or any other person, such
aggregate value will be determined as if such acquisition were of 100%
of the stock of the Company); (c) if the Company or any entity formed or
owned in substantial part or controlled by the Company or one or more
members of senior management of the Company or any employee benefit plan
of the Company or any of its subsidiaries effects certain recapitalization
transactions, a fee equal to 0.62% of the aggregate value of such
transaction; (d) if the Company sells, distributes or liquidates all of
its assets, or a portion of its assets having an aggregate value of $50
million or more, and no fee is otherwise payable pursuant to clause (b)
or (c) above, a fee based upon the aggregate value of such transaction
pursuant to a schedule ranging from 2.00% if the aggregate value of the
transaction is $50 million, to 0.75% if the aggregate value of the
transaction is $750 million or more; and (e) in the event no transaction
of the type described in clause (b) or (c) above has been consummated by
any of the following dates, a fee of $1.5 million on each such date as
of which no transaction has been consummated: October 31, 1995,
January 31, 1996, April 30, 1996, July 31, 1996 and October 31, 1996.
Any fee paid pursuant to clause (e) shall be creditable against any fee
payable under clause (b), (c) or (d) above. Any fee paid under clause
(b) above shall be creditable against any fee subsequently paid under
clause (c) above, and vice versa.
Goldman Sachs acted as the Company's financial advisor with regard to
the Moore proxy solicitation. No additional fee was or will be paid to
Goldman Sachs in connection therewith.
The Letter Agreement may be terminated at any time by either party
thereto, with or without cause, effective upon receipt of written notice
to that effect. Goldman Sachs will be entitled to the transaction fee
set forth above if at any time prior to the expiration of eighteen months
after such termination a transaction of the type contemplated by clause
(b), (c) or (d) above is consummated and, in the case of a transaction
contemplated by clause (b) or (d), there was contact with the acquiring
party, or any affiliate thereof, regarding such a transaction during the
period of Goldman Sachs' engagement. Any fee paid under clause (e) shall,
however, be credited against any such transaction fee.
<PAGE>
Wallace Computer Services, Inc. Page 9
FORM 10-Q
For Quarterly Period Ended April 30, 1996
Note 6 - Subsequent Events
On June 5, 1996, the Board of Directors approved a two-for-one split
of the company's common shares and will distribute one additional
share of common stock for each share outstanding to shareholders of
record as of the close of business on July 15, 1996.
The Board also authorized the repurchase of up to $100 million of the
company's stock. Shares will be repurchased from time to time at the
discretion of the company at prices prevailing at the time of
repurchase.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- ---------------------------------------------------------------------
Results of Operations
---------------------
There have been no material changes in financial condition since the
preceding fiscal year which ended July 31, 1995.
For the three month period ended April 30, 1996, net sales increased
18.7% to $213,762,000. Net income for the third quarter increased 20.8%
to $17,451,000 or 76 cents per share, from $14,450,000 or 64 cents per
share in fiscal 1995. Pretax income for the quarter was up by $5,438,000
or 23.7%. The after tax impact of expenses related to the hostile takeover
attempt by Moore Corporation Limited was $1,090,000 or 5 cents per share.
For the nine month period ended April 30, 1996, net sales increased 25.9%
to $647,745,000. Net income for the first three quarters increased 36.1%
to $53,799,000 or $2.36 per share, from $39,530,000 or $1.76 per share in
fiscal 1995. Pretax income for the three quarters was up by $24,827,000
or 39.8%. The after tax impact of hostile takeover expenses was
$5,360,000 or 24 cents per share. The impact of the Goldman Sachs fees
pursuant to the letter agreement will be fully recognized in the fiscal
year ended July 31, 1996.
Cost of goods sold represented 62.6% of sales in both the third quarter
of fiscal 1996 and 1995. The third quarter of fiscal 1996 includes a LIFO
credit of $4,032,000 or 10.8 cents per share. The credit is due to a
decrease in paper prices offset by higher finished goods inventory levels
anticipated by year-end. Cost of goods sold for the three quarters was
62.8% in fiscal 1996 versus 63.7% in fiscal 1995. Total LIFO credits for
the three quarters were $5,046,000 or 13.6 cents per share. The LIFO
provision for the first three quarters of 1995 was $6,633,000 or 18.7
cents per share.
Selling and administrative expenses were 17.9% of sales versus 19.7% in
the third quarter last year. For the first three quarters of fiscal 1996,
expenses are 17.4% of sales versus 19.2% in fiscal 1995. These decreases
are attributable to maintaining fixed costs while increasing sales.
The provision for depreciation and amortization is up 22.2% in the first
three quarters from fiscal 1995. This increase is the result of the
Company's continued reinvestment in capital resources and system
development.
<PAGE>
Wallace Computer Services, Inc. Page 10
FORM 10-Q
For Quarterly Period Ended April 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
- -----------------------------------------------------------------------
Interest income for the first three quarters decreased by $752,000 or
27.4% from the same period one year ago. The reduction is due to the
decrease in cash and short term investments attributable to reinvestment
in the Company through capital expenditures and acquisitions. Interest
expense, which is shown net of capitalized interest, decreased $75,000
or 7.3% between years. The reduction of interest expense is attributable
to the retirement of $6,110,000 of debt during fiscal 1995 and a
$5,000,000 increase in debt related to the FEC acquisition.
Operating income for the quarter was up $5,685,000 or 25.3%. For the
first three quarters, operating income was up $25,504,000 or 42.0%. For
fiscal 1996 this represents 13.3% to sales versus 11.8% for fiscal 1995.
Liquidity and Capital Resources
-------------------------------
Working capital increased by $4,284,000 from July 31,1995, with a current
ratio of 3.4 at April 30, 1996. Long-term debt includes $23,500,000 of
industrial revenue bonds at rates ranging from 4.15% to 4.25%, as well as
$2,100,000 related to acquisitions made in the prior fiscal year and
$5,000,000 related to the FEC acquisition this fiscal year. Long-term
debt currently represents 5.8% of total capitalization.
Capital expenditures for the first nine months totaled $46,180,000. For
the full fiscal year, capital expenditures are expected to be $60.0
million, which are expected to be financed through internally generated
funds and by the Industrial Revenue Bond for our Lebanon facility.
Stockholders' equity increased by 9.7% to $500.5 million at April 30, 1996.
Cash balances remain adequate to fund current operations. There have been
no borrowings under short term lines of bank credit thus far in this
fiscal year.
On June 5, 1996, the Board of Directors authorized the repurchase of up to
$100 million of the company's stock. The company intends to finance the
stock repurchase program through both working capital generated from
operations as well as by utilizing lines of credit up to $100 million.
The company has secured commitments for these lines of credit from two
local banks and is currently finalizing formalized agreements with them.
Current inventory levels are believed to be in-line with the inventory
levels necessary to satisfy customer demand. The company anticipates
having adequate sources of supply of raw materials to meet future business
requirements.
Common Stock
-------------------
On September 7, 1995, the Board of Directors increased the annualized
dividend rate to $.86 per share, a 16.2% increase from fiscal 1995.
<PAGE>
Wallace Computer Services, Inc. Page 11
FORM 10-Q
For Quarterly Period Ended April 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- -------------------------------------------------------------------
Other
-------
Effective February 1, 1996, the Company sold the Lasermax division to
Stralfors A.B. of Ljungby, Sweden in a cash transaction which approximates
book value. It is not anticipated that the sale will affect the earnings
forecast for fiscal 1996.
On February 8, 1996 the Company completed the acquisition of Forms
Engineering Company. The acquisition was a cash transaction and will be
accounted for using the purchase method. Though the acquisition is
anticipated to be additive to fiscal 1996 earnings, it is not expected to
have a material impact.
Part II Other Information
-------------------------------
Item 1 Legal Proceedings
- -----------------------------------
THE MOORE ACTION. On July 31, 1995, Moore Corporation Limited ("Moore")
and FRDK, Inc. ("FRDK") commenced an action in the United States District
Court for the District of Delaware by filing a complaint (the "Moore
Action") against the Company and each of the directors of the Company,
entitled MOORE CORPORATION LIMITED AND FRDK, INC. V. WALLACE COMPUTER
SERVICES, INC., ROBERT J. CRONIN, THEODORE DIMITRIOU, FRED F. CANNING,
WILLIAM N. LANE, III, NEELE E. STEARNS, JR., R. DARRELL EWERS, RICHARD F.
DOYLE AND WILLIAM E OLSEN. The Moore Action, as amended by the Amended
and Supplemental Complaint filed on October 17, 1995, asserts, among other
things, that the use of certain anti-takeover devices and other defensive
measures by the Company is not proportionate nor within the range of
reasonable responses to the tender offer made by FRDK, a wholly owned
subsidiary of Moore, to purchase all outstanding shares of common stock
of the Company, together with associated preferred stock purchase rights
(the "Rights") issued pursuant to the Rights Agreement, dated as of March
14, 1990 (the "Rights Agreement"), at a price of $60.00 net to the seller
in cash (the "Offer"), and is in breach of the directors' fiduciary duties
to the Company's stockholders. The Moore Action also asserts that the
Offer and a merger with FRDK or another wholly owned subsidiary of Moore
(the "Proposed Merger") and proxy solicitation comply or will comply with
all applicable laws and other obligations and seeks a declaratory judgment
that the Offer and the Proposed Merger and proxy solicitation comply with
all applicable laws and other obligations. The Moore Action seeks: (i)
preliminary and permanent injunctive relief prohibiting the Company, its
directors, officers and certain other related parties from taking steps to
impede the ability of the Company's stockholders to consider and make
their own determination as to whether to accept the terms of the Offer or
give or withhold consent to the terms of the proxy solicitation, or taking
any other action to thwart or interfere with the Offer, the Proposed
Merger or the proxy solicitation; (ii)(a) to compel the Company's
directors to redeem the Rights or amend the Rights Agreement to make the
Rights inapplicable to the Offer and the Proposed Merger, and (b)
preliminary and permanent injunctive relief enjoining the Company, its
directors, officers and certain other related parties from taking any
action to implement and distribute the Rights and from taking actions
pursuant to the Rights Agreement; (iii)(a) to compel the Company's
directors to approve the Offer and the Proposed Merger for the purposes
of Section 203 of the Delaware General Corporation Law ("Section 203"),
and (b) preliminary and permanent injunctive relief enjoining the Company,
<PAGE>
Wallace Computer Services, Inc. Page 12
FORM 10-Q
For Quarterly Period Ended April 30, 1996
Item 1 Legal Proceedings (continued)
- ------------------------------------
its directors, officers and certain other related parties from taking any
actions to enforce or apply Section 203 that would interfere with the
Offer; and (iv)(a) to compel the Company's directors to approve the Offer
and the Proposed Merger for purposes of Article Ninth of the Restated
Certificate of Incorporation of the Company ("Article Ninth"), and (b)
preliminary and permanent injunctive relief enjoining the Company, its
directors, officers and certain other related parties from taking any
actions to enforce or apply Article Ninth that would interfere with the
Offer. On August 15, 1995, the Company and each of the directors of the
Company filed a Motion to Dismiss the Moore Action. On September 19,
1995, the United States District Court for the District of Delaware denied
the Motion to Dismiss. On September 25, 1995, the Company and its
directors filed an Answer and Counterclaim in the United States District
Court for the District of Delaware in connection with the Moore Action.
The counterclaim brought against Moore, Bidder and Reto Braun, Chairman
of the Board and Chief Executive Officer of Moore, asserts (i) that the
effect of the transactions contemplated by the Offer to Purchase may be
substantially to lessen competition in a relevant market and therefore
violate Section 7 of the Clayton Act, 15 U.S.C. Section 18; and (ii) that
Moore, the Bidder, and Mr. Braun have made false and misleading statements
of fact in connection with the Offer and their proxy solicitation
materials. The counterclaim seeks declaratory and injunctive relief (i)
enjoining Moore and the Bidder from acquiring any voting securities of
the Company and (ii) enjoining Moore, the Bidder and Mr. Braun from
acquiring any shares of Common Stock of the Company until 60 days after
they have fully complied with the Securities Exchange Act of 1934, as
amended. On December 4, 1995, the United States District Court for the
District of Delaware issued an Order and an Opinion. Pursuant to the
Order and Opinion, the Court denied Moore and the Bidder's motion for a
preliminary injunction with respect to the breach of fiduciary claim. In
addition,the Court granted Moore and the Bidder's motion to dismiss the
Company's antitrust counterclaim. On January 23, 1996, the Court entered
a final judgment dismissing all claims in the action with prejudice. On
January 29, 1996, the Company filed a notice of appeal with the District
Court in order to appeal the Court's dismissal of the Company's antitrust
counterclaim described above. Briefing on the appeal is currently pending.
STOCKHOLDER ACTIONS. The Company and its directors have been named as
defendants in three purported class actions filed between July 31, 1995
and August 3, 1995 on behalf of the public stockholders of the Company in
the Court of Chancery of the State of Delaware in and for New Castle
County. These actions are entitled: BERNARD KOFF V. THEODORE DIMITRIOU,
FRED CANNING, WILLIAM N. LANE, NEELE E. STEARNS, JR., ROBERT J. CRONIN,
DARRELL R. EWERS, RICHARD F. DOYLE, WILLIAM E. OLSEN, AND WALLACE COMPUTER
SERVICES, INC.; KITTY LAPERRIERE V. WALLACE COMPUTER SERVICES INC.,
THEODORE DIMITRIOU AND ROBERT J. CRONIN ; AND ROBIN K. PITTMAN V. THEODORE
DIMITRIOU, FRED F. CANNING, WILLIAM N. LANE, III, NEELE E. STEARNS, JR.,
ROBERT J. CRONIN, DARRELL R. EWERS, RICHARD F. DOYLE, WILLIAM E. OLSEN,
AND WALLACE COMPUTER SERVICES INC. (collectively, the "Stockholder
Actions"). The complaints in the Stockholder Actions contain substantially
similar allegations, and allege breach of fiduciary duty claims arising
out of the proposal by FRDK to acquire the Company. The complaints in the
Stockholder Actions also seek substantially similar relief, including
declaratory and injunctive relief barring defendants from breaching their
fiduciary duties to plaintiffs and the putative class members and taking
steps to impede any offer to acquire the Company, as well as damages in an
unspecified amount. On September 22, 1995, the plaintiffs in KOFF V.
DIMITRIOU, et al. and LAPERRIERE V. WALLACE COMPUTER SERVICES INC., et al.
filed an Amended Class Action Complaint, which, among other things,
consolidates the actions such plaintiffs filed in the Court of Chancery of
the State of Delaware. The Amended Class Action Complaint, among other
things, seeks injunctive relief with respect to enforcement of certain
amendments to the Company's Profit Sharing Plan and Profit Sharing Trust.
<PAGE>
Wallace Computer Services, Inc. Page 13
FORM 10-Q
For Quarterly Period Ended April 30, 1996
Item 1 Legal Proceedings (continued)
- ------------------------------------
On November 21, 1995, the plaintiffs in KOFF V. DIMITRIOU, et al. and
LAPERRIERE V. WALLACE COMPUTER SERVICES, INC., et al. filed a Second
Amended Class Action Complaint in the Court of Chancery of the State of
Delaware. The plaintiffs' counsel in the Stockholders Actions has
extended the time in which the Company must answer or otherwise respond to
the complaint until ten days from the date plaintiffs' counsel requests
such a response.
Items 2 thru 5 None
- -------------------
Item 6 Exhibits
- -----------------------
(a) Exhibits
10.1 Addendum to Indemnification Agreement with Officer for FEC
Employee Stock Ownership Trust
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the quarter
ended April 30, 1996.
<PAGE>
Wallace Computer Services, Inc. Page 14
FORM 10-Q
For Quarterly Period Ended April 30, 1996
SIGNATURES
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALLACE COMPUTER SERVICES, INC.
June 6, 1996 /s/ ROBERT J. CRONIN
- ------------------ -------------------------------------
Date Robert J. Cronin
President and Chief Executive Officer
June 6, 1996 /s/ MICHAEL J. HALLORAN
- ------------------ ---------------------------------------
Date Michael J. Halloran
Vice President,Chief Financial Officer,
and Assistant Secretary
(Principal Accounting Officer)
Exhibit 10.1
ADDENDUM TO
INDEMNIFICATION AGREEMENT WITH OFFICER
(TRUSTEE OF FEC EMPLOYEE STOCK OWNERSHIP TRUST)
ADDENDUM made and entered into as of January 8, 1996 between WALLACE
COMPUTER SERVICES, INC., a Delaware Corporation (the "Company"), its
wholly-owned subsidiary, Forms Engineering Company ("FEC"), Robert J.
Cronin (the "Officer").
W I T N E S S E T H :
WHEREAS, the officer is a valued officer of the Company; and
WHEREAS, under the provisions of the Company's Certificate of Incorporation,
as in effect on the date hereof, the Company is obligated, to the fullest
extent permitted from time to time by applicable law, to hold harmless and
indemnify each person who is or was at any time an officer of the Company
from and against any and all expenses (including attorneys' fees),
judgments, fines, amounts paid in settlement, and other liabilities and
claims of any kind, that any such person may at any time suffer or incur
or become subject to as a result of or in connection with his or her
serving or having served at any time as an officer of the Company
(collectively, the "Primary Officer Liabilities"), except that the Company
does not have any affirmative obligation under its Certificate of
Incorporation as in effect on the date hereof to indemnify any person who
is or was an officer with respect to expenses, judgments, fines, amounts
paid in settlement, or other liabilities or claims of any kind based upon
or attributable to (i) any breach of the officer's duty of loyalty to the
Company or its stockholders, (ii) any acts or omissions by the officer
which are not in good faith or which involve intentional misconduct or
deliberate dishonesty, (iii) any improper personal profit or benefit by
the officer, or (iv) any income taxes in respect of compensation received
for services as an officer; and
WHEREAS, under the provisions of the Company's Certificate of Incorporation,
as in effect on the date hereof, the Company may, to the extent permitted
from time to time by applicable law, hold harmless and indemnify such
persons (including officers) as the Board of Directors may from time to
time determine, from and against such expenses (including attorneys' fees),
judgments, fines, amounts paid in settlement, and other liabilities and
claims of any kind as the Board of Directors may from time to time
determine, that any such person may at any time suffer or incur or become
subject to as a result of or in connection with his or her serving or
having served at any time as an employee or agent or in any other capacity
with the Company, with any predecessor of the Company, or with any
constituent corporation in any merger or consolidation with the Company,
or as a result of or in connection with his or her serving or having
served at any time at the request or an behalf of the Company as a
director, officer, employee or agent or in any other capacity with any
other corporation, partnership, joint venture, trust, or other enterprise
or entity of any kind, including, without limitation, any subsidiary or
affiliated company or any employee benefit plan or trust (the "Additional
Officer Liabilities").
<PAGE>
WHEREAS, the Company has heretofore entered into an Indemnification
Agreement with the Officer pursuant to which the Company has agreed to
hold harmless and indemnify the Officer from and against Primary Officer
Liabilities and Additional Officer Liabilities (collectively, the "Officer
Liabilities"); and
WHEREAS, the Officer is a trustee of FEC's Employee Stock Ownership Trust
(the "FEC Employee Stock Ownership Trust"); and
WHEREAS, the Company and the Officer desire to confirm that the obligation
of the Company to hold harmless and indemnify the officer pursuant to the
Indemnification Agreement extends to expenses (including attorneys, fees),
judgments, fines, amounts paid in settlement, and other liabilities and
claims of any kind, that the Officer may at any time suffer or incur or
become subject to as a result of or in connection with his or her serving
or having served at any time as a trustee of the FEC Employee Stock
Ownership Trust (the "ESOP Liabilities").
NOW, THEREFORE, in order to induce the officer to serve as a trustee of
the FEC Employee Stock Ownership Trust and in consideration of his
continued service in such capacities, the Company hereby agrees with the
Officer as follows:
1. Notwithstanding any amendment, modification or repeal of the
indemnification provisions of the Company's Certificate of Incorporation
after the date hereof, the Officer Liabilities shall be deemed to include
the ESOP Liabilities, and the Company shall, to the fullest extent
permitted from time to time by applicable law, hold harmless and indemnify
the Officer from and against any and all ESOP Liabilities to the same
extent, and in the same manner, that the officer is entitled to be held
harmless and be indemnified by the Company from and against any and all
Officer Liabilities.
2. Nothing contained in this Addendum is intended to limit or restrict
the right of the Officer to obtain indemnification or advancement of
costs and expenses under the provisions of the Delaware General
Corporation Law as in effect from time to time, under the provisions of
the Company's Certificate of Incorporation as in effect from time to
time, under the provisions of the Indemnification Agreement as in effect
from time to time, or otherwise; and the rights of the Officer to obtain
indemnification and advancement of costs and expenses under this Addendum
are in addition to any and all other rights the Officer may have from
time to time to obtain indemnification or advancement of costs and
expenses from the Company or otherwise.
<PAGE>
3. This Addendum shall inure to the benefit of and be enforceable by the
officer and his estate, heirs, legatees and personal representatives and
shall be binding upon and enforceable against the Company and its
successors and assigns (including, without limitation, any successor by
merger or consolidation and any transferee of all or substantially all
of its assets); and this Addendum shall survive the termination of the
officer's service as an officer of the Company or a trustee of the FEC
Employee Stock Ownership Trust for any reason.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
WALLACE COMPUTER SERVICES, INC., a
Delaware corporation
BY: /s/ MICHAEL O. DUFFIELD
---------------------------------
By: Michael O. Duffield
Title: Senior Vice President
FORMS ENGINEERING COMPANY, a
California corporation
BY: /s/ ROBERT J. CRONIN
---------------------------------
By: Robert J. Cronin
Title: Chairman of the Board
OFFICER:
/s/ ROBERT J. CRONIN
---------------------------------
Robert J. Cronin
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1996
<CASH> 14,211
<SECURITIES> 23,768
<RECEIVABLES> 145,900
<ALLOWANCES> (3,145)
<INVENTORY> 80,432
<CURRENT-ASSETS> 279,773
<PP&E> 544,693
<DEPRECIATION> (258,637)
<TOTAL-ASSETS> 667,398
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0
0
<OTHER-SE> 477,642
<TOTAL-LIABILITY-AND-EQUITY> 677,398
<SALES> 647,745
<TOTAL-REVENUES> 647,745
<CGS> 406,648
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<INCOME-PRETAX> 87,259
<INCOME-TAX> 33,460
<INCOME-CONTINUING> 53,799
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