<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
October 31, 1999 1-6528
- -------------------------------------- -----------------------------------
For the quarterly period ended Commission file number
WALLACE COMPUTER SERVICES, INC.
-----------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2515832
- ---------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2275 Cabot Drive Lisle, Illinois 60532
- -------------------------------------------------- -----------------
(Address of Principal Executive Offices) (ZIP CODE)
(630) 588-5000 41,886,536
- ---------------------------------- --------------------------------------
(Registrant's Telephone Number, (Number of Common Shares Outstanding
Including Area Code) as of November 30, 1999)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
------- -------
<PAGE> 2
Wallace Computer Services, Inc. Page 2
FORM 10-Q
For Quarterly Period Ended October 31, 1999
Part I Financial Information
----------------------------------
Item 1. Financial Statements
- ------------------------------------
The information furnished herein reflects all adjustments which are, in
the opinion of the management, necessary to a fair statement of the
results of operations and financial position for the three months ended
October 31, 1999, subject to year-end audit by independent public
accountants. These adjustments are of a normal, recurring nature.
Wallace Computer Services, Inc. and Subsidiaries
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
October 31
-------------------------------------------------------
% %
1999 Sales 1998 Sales
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $387,616,000 100.0 $384,915,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 265,210,000 68.4 267,136,000 69.4
Selling and administrative expenses 65,318,000 16.9 63,388,000 16.5
Provision for depreciation and
amortization 19,586,000 5.1 18,736,000 4.9
------------ ------ ------------ -----
Total costs and expenses 350,114,000 90.3 349,260,000 90.7
------------ ------ ------------ -----
Operating Income 37,502,000 9.7 35,655,000 9.3
------------ ------ ------------ -----
Interest income (941,000) (0.2) (301,000) (0.1)
Interest expense 7,478,000 1.9 7,574,000 2.0
------------ ------ ------------ -----
Income before Income Taxes 30,965,000 8.0 28,382,000 7.4
Provision for Income Taxes 12,386,000 3.2 11,353,000 2.9
------------ ------ ------------ -----
Net Income $ 18,579,000 4.8 $ 17,029,000 4.4
============ ====== ============ =====
Basic Earnings per Share $0.44 $0.40
===== =====
Diluted Earnings per Share $0.44 $0.40
===== =====
Average Common Shares Outstanding 42,356,000 42,746,000
============ ============
Diluted Common Shares Outstanding 42,556,000 42,854,000
============ ============
Dividends Declared Per Share $0.165 $0.16
====== =====
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 3
Wallace Computer Services, Inc. and Subsidiaries Page 3
Consolidated Balance Sheet
<TABLE>
<CAPTION>
October 31, 1999 July 31, 1999
(Unaudited) (Audited)
-------------- --------------
<S> <C> <C>
Assets
- ------
Current Assets
Cash and cash equivalents $13,387,000 $8,033,000
Accounts receivable 310,897,000 297,677,000
Less-allowance for doubtful accounts 5,445,000 5,582,000
-------------- --------------
Net receivables 305,452,000 292,095,000
Inventories (Note 1) 111,110,000 107,540,000
Prepaid taxes 25,075,000 37,422,000
Advances and prepaid expenses 3,719,000 3,284,000
-------------- --------------
Total current assets 458,743,000 448,374,000
-------------- --------------
Property, plant and equipment, at cost 865,833,000 846,898,000
Less-reserves for depreciation and amortization 425,511,000 409,891,000
-------------- --------------
Net property, plant and equipment 440,322,000 437,007,000
-------------- --------------
Intangible assets arising from acquisitions 304,111,000 306,117,000
Cash surrender value of life insurance 59,732,000 58,796,000
Systems development costs 47,509,000 43,337,000
Other assets 3,859,000 4,028,000
-------------- --------------
Total assets $1,314,276,000 $1,297,659,000
============== ==============
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities
Current portion long-term debt $2,185,000 $2,290,000
Short-term notes payable 46,962,000 21,222,000
Accounts payable 81,758,000 85,577,000
Accrued salaries, wages, profit sharing and other 84,067,000 82,776,000
-------------- --------------
Total current liabilities 214,972,000 191,865,000
-------------- --------------
Long-term debt 405,694,000 416,653,000
Deferred income taxes 64,392,000 64,438,000
Deferred compensation and retirement benefits 32,529,000 31,992,000
Other long-term liabilities 8,592,000 9,144,000
Stockholders' equity
Common stock (Note 2)- issued shares of
45,764,054 at October 31, 1999 and July 31, 1999 45,764,000 45,764,000
Additional capital 37,633,000 37,528,000
Deferred compensation 3,883,000 3,883,000
Retained earnings 592,751,000 581,392,000
Treasury stock (at cost)- 3,879,739 shares at
October 31, 1999 and 3,546,243 shares at
July 31, 1999 (91,934,000) (85,000,000)
-------------- --------------
Total stockholders' equity 588,097,000 583,567,000
-------------- --------------
Total liabilities and stockholders' equity $1,314,276,000 $1,297,659,000
============== ==============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
Wallace Computer Services, Inc. and Subsidiaries Page 4
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
October 31
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from Operating Activities:
Net income from operations $18,579,000 $17,029,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19,586,000 18,736,000
Deferred taxes (46,000) (1,099,000)
Gain on disposal of property (257,000) (47,000)
Changes in assets and liabilities
Accounts receivable (13,357,000) (36,791,000)
Inventories (3,570,000) (6,168,000)
Advances and prepaid expenses (435,000) (1,701,000)
Prepaid taxes 12,347,000 0
Other assets (5,426,000) (9,536,000)
Accounts payable and other liabilities (3,181,000) 15,279,000
Accrued income taxes 0 10,614,000
Deferred compensation and retirement benefits 537,000 668,000
----------- -----------
Net cash provided by operating activities 24,777,000 6,984,000
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (19,911,000) (14,896,000)
Proceeds from disposal of property 975,000 3,266,000
Net construction funds held by trustee 0 704,000
----------- -----------
Net cash used in investing activities (18,936,000) (10,926,000)
----------- -----------
Cash Flows from Financing Activities:
Treasury stock transactions (7,159,000) (24,314,000)
Cash dividends paid (6,787,000) (6,697,000)
Net proceeds from short-term debt 25,740,000 27,603,000
Retirement of long-term debt (12,281,000) (151,000)
Proceeds from issuance of long-term debt 0 4,000,000
----------- -----------
Net cash (used in)/provided by financing activities (487,000) 441,000
----------- -----------
Net changes in cash and cash equivalents 5,354,000 (3,501,000)
Cash and cash equivalents at beginning of year 8,033,000 3,501,000
----------- -----------
Cash and cash equivalents at October 31 $13,387,000 $ 0
=========== ===========
Supplemental Disclosure:
Interest paid (net of interest capitalized) $ 8,597,000 $ 3,145,000
Income taxes paid (net of refunds received) 1,128,000 710,000
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 5
Wallace Computer Services, Inc. and Subsidiaries Page 5
Notes to Consolidated Financial Statements
October 31, 1999
(Unaudited)
Note 1 - Inventories
Inventories at October 31, 1999, and July 31, 1999, were as follows:
October 31, 1999 July 31, 1999
---------------- -------------
Raw materials $19,224,000 $18,043,000
Work in process 18,822,000 16,948,000
Finished products 73,064,000 72,549,000
------------ ------------
$111,110,000 $107,540,000
============ ============
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 October 31, 1999, options to purchase 2,559,063 shares of common
stock were outstanding and 3,744,710 shares of common stock were
available for future grants under the Company's Stock Incentive and
Employee Stock Purchase Plans.
The Company has authorized 100,000,000 shares of common stock and
issued 45,764,054 as of October 31, 1999. Of these shares, 3,879,739
were held in treasury as of October 31, 1999. The number of shares held
in treasury at July 31, 1999 was 3,546,243.
Note 3 - Segment Reporting
The Company adopted SFAS No. 131 for fiscal year-ended 1999. The
Company operates in two business segments. Each segment offers
distinctive products and services and are managed separately because of
their unique production, distribution, and marketing requirements. The
Company's two reportable segments are Forms and Labels, and Integrated
Graphics.
The principal products and services supplied by the Forms and Labels
Segment include the design, manufacture and sales of both paper based
and electronic business forms, the manufacture of both electronic data
processing (EDP) labels and prime labels, and the manufacture and
distribution of a standard line of office products. The principal
products and services supplied by the Integrated Graphics Segment
include the design and manufacture of high-color, high quality
marketing and promotional materials, and the manufacture of direct
response printing materials.
<PAGE> 6
Wallace Computer Services, Inc. and Subsidiaries Page 6
Notes to Consolidated Financial Statements
October 31, 1999
(Unaudited)
Note 3 - Segment Reporting (continued)
The Company's accounting policies for the segments are the same as
those described in the Summary of Significant Accounting Policies in
the Company's 1999 Annual Report. Management evaluates segment
performance based on segment profit or loss before interest and income
taxes. Net interest expense and income taxes are not allocated to
segments. Transfers between segments, which are not significant, are
accounted for at standard cost.
Summarized segment data and a reconciliation to the consolidated totals
for the quarters ended October 31, 1999 and 1998 are as follows:
Quarter Ended October 31, 1999 External Income before
Sales Income Taxes
(Amounts in Thousands)
- ---------------------------------------------------------------------------
Forms and Labels Segment $201,665 $25,402
Integrated Graphics Segment 185,951 12,100
- ---------------------------------------------------------------------------
Segment Total 387,616 37,502
- ---------------------------------------------------------------------------
Net Interest Expense - (6,537)
- ---------------------------------------------------------------------------
Consolidated $387,616 $30,965
===========================================================================
Quarter Ended October 31, 1998 External Income before
Sales Income Taxes
(Amounts in Thousands)
- ---------------------------------------------------------------------------
Forms and Labels Segment $199,290 $24,603
Integrated Graphics Segment 185,625 11,052
- ---------------------------------------------------------------------------
Segment Total 384,915 35,655
- ---------------------------------------------------------------------------
Net Interest Expense - (7,273)
- ---------------------------------------------------------------------------
Consolidated $384,915 $28,382
===========================================================================
There are no material changes in Segment Assets from Fiscal Year-End 1999.
Note 4 - Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use.
In fiscal 2000, the Company adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use". The statement requires that certain costs, such as
preliminary project costs and training, related to internally developed
software must be expensed as incurred. Based on current circumstances,
the Company does not believe that application of SOP 98-1 will have a
material effect on the Company's financial condition or results of
operations.
Note 5 - Reporting on the Costs of Start-up Activities
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-up Activities", which
requires costs of start-up activities and organization costs to be
expensed as incurred. The Company adopted this standard in the first
quarter of fiscal 2000. Implementation of this standard has not
affected the Company's financial condition or results of operations.
<PAGE> 7
Wallace Computer Services, Inc. and Subsidiaries Page 7
Notes to Consolidated Financial Statements
October 31, 1999
(Unaudited)
Note 6 - Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
This standard requires that an entity recognize derivatives as either
assets or liabilities on its balance sheet and measure those
instruments at fair value. As a result of SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133", the Company will adopt this standard
in the first quarter of fiscal 2001. Based on current circumstances,
the Company does not believe that application of SFAS No. 133 will have
a material effect on the Company's financial condition or results of
operations.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
Results of Operations
------------------------------
For the three month period ended October 31, 1999, net sales increased
0.7% to $387,616,000. Adjusting for acquisitions and divestitures, net
sales were up 2.9% over the same quarter a year ago. The Company
estimates unit growth in the range of 2% to 4%. Material prices had
very little impact on net sales for the quarter as compared to the
first quarter of last year.
Sales to customers managed by the W.I.N. system totalled 40% of the
first quarter's sales which is up from 38% in the first quarter of
fiscal year 1999. The Integrated Graphics' segment, which accounted for
only 16% of sales to these customers in the first quarter of last year,
now accounts for over 22% of the sales. This segment increased almost
48% in sales made to customers managed by the W.I.N. system in year
over year comparisons. Sales in the Forms and Labels segment increased
6% in this category. An increase in sales to these customers provides
the Company with a larger sales base of longer term contracts resulting
in an increased, more consistent asset utilization at our facilities.
Net income for the first quarter increased 9.1% to $18,579,000 or 44
cents per share, from $17,029,000 or 40 cents per share in the same
quarter a year ago.
Cost of sales for the quarter was 68.4% of sales for the quarter as
compared to 69.4% in the first quarter of last year. The first quarter
includes a LIFO charge of $571,000 or 0.8 cents per share versus no
charge in the prior year's first quarter.
Year over year, the Forms and Labels segment's sales increased 1.2% to
$201.7 million, with operating income of $25.4 million and operating
margin of 12.6% versus operating income of $24.6 million and an
operating margin of 12.3% in the first quarter of last year. Adjusting
for the acquisitions and divestitures, net sales in this segment
increased 7.5%. In the second quarter of last fiscal year, the Company
divested its Contract Stationers business, which had annual sales of
around $40 million. While the operating margin compares favorably to
the prior year's first quarter, it is below the trailing three
quarters, mostly due to paper cost increases that have occurred since
the beginning of the calendar year. Paper costs have increased 27%
since January 1, 1999. While this is favorable for this segment
long-term, this causes short-term margin compression as there is a
grace period in passing the paper prices along to our contract customer
base. The impact of these paper cost changes adversely affected
operating margins by 80 basis points in the first quarter.
<PAGE> 8
Wallace Computer Services, Inc. and Subsidiaries Page 8
Notes to Consolidated Financial Statements
October 31, 1999
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- --------------------------------------------------------------------------------
The Integrated Graphics' segment sales increased 0.2% to $185.9
million, with operating income of $12.1 million and operating margin of
6.5% versus operating income of $11.1 million and an operating margin
of 6.0% in the first quarter of last year. As mentioned earlier, sales
to customers being managed by the W.I.N. system increased 48% in this
segment over the first quarter a year ago. Local transactional
business, which is typically characterized as non-recurring and with a
lead time of 2 to 14 days, dropped off from the prior year, especially
in the Southeastern United States. The Company plans to increase the
local sales force by 10% over the next two quarters in order to achieve
growth in this local transactional business. The combination of
increased contract sales to national accounts and increased local
transactional business should lead to increased operating margins in
this segment.
Selling and administration expenses for the quarter were 16.9% versus
16.5% last year. The majority of the increase relates to continued
expansion in the Company's information technology infrastructure and
positioning for business-to-business eCommerce. Last year's total
includes $512,000 of Year 2000 related programming expenses compared to
no charges in the current fiscal year. Total Year 2000 costs are the
same as disclosed in the Company's 1999 Annual Report.
The Company's effort to address Year 2000 compliance issues included
(i) evaluating internal computing infrastructure, business applications
and production systems for Year 2000 compliance, and (ii) replacing or
remediating systems and applications as necessary to assure such
compliance. The Company's efforts in these respects are complete. The
Company has completed an inventory of all potentially affected
software, firmware and hardware (including embedded chips) material to
its operations. The Company has remediated the problem by modifying its
software and in certain cases, purchasing new software, firmware and
hardware.
The Year 2000 project was completed in two phases. In Phase 1, the
Company assessed and remediated all material date and logic errors in
applications and databases running on its internal mainframe, AS400 and
UNIX systems. Phase 1 culminated with a successful two-week, on-site
test by one of our largest customers: a major financial institution.
During testing, the Company simulated operations on 20 dates ranging
from September 9, 1999 to January 3, 2001 without any material
interruption.
In Phase 2, the Company certified the compliance of all mission
critical manufacturing and operational equipment (e.g. printing
presses, conveyors, and heating and cooling systems).
As part of the final phase of the Year 2000 project, the Company
implemented internal administration systems which have been tested by
the Company or that have been certified by the outside provider as
being Year 2000 compliant. Implementation was completed as of July 31,
1999.
In addition, the Company has focused on an initiative to upgrade and
standardize the information technology of its newly acquired high color
marketing and promotional printing facilities, which had the incidental
effect of addressing certain Year 2000 compliance issues.
Based on communications with vendors and, where deemed appropriate,
internal testing, the Company believes that substantially all of its
equipment used in its printing operations, including its pre-press and
press equipment and its equipment used to finish and deliver its
products, will not be materially affected by a Year 2000 related
failure.
<PAGE> 9
Wallace Computer Services, Inc. and Subsidiaries Page 9
Notes to Consolidated Financial Statements
October 31, 1999
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- --------------------------------------------------------------------------------
In addition to its internal remediation activities, the Company is
continuing to evaluate compliance by key suppliers and customers whose
systems interact with those of the Company (collectively, "Trading
Partners"). The Company has received confirmation from its significant
Trading Partners regarding Year 2000 readiness and is comfortable with
its Trading Partners level of Year 2000 compliance. Contingency plans
have been developed, where necessary, in the event a Trading Partner
cannot function properly after the Year 2000.
There are many suppliers of paper, ink and other materials used in
printing operations. Thus, the Company believes that it is not
materially dependent on any one supplier. Nonetheless, the Company
relies upon utility companies, telecommunication services providers,
delivery services, the financial services industry and other suppliers
outside of its control and there can be no assurance that such
suppliers or other third parties will not suffer a Year 2000 business
disruption. The failure of the systems or equipment of one or more
third parties (which the Company believes is the most likely "worst
case" scenario) could result in the reduction or suspension of one or
more of the Company's operations and could have a material adverse
effect on the Company. Due to the multiple locations of the Company's
manufacturing facilities and redundancy of capabilities, localized
interruptions would not be expected to have a material adverse effect
on the Company. However, in the case of a systemic failure, such as
wide-spread and prolonged telecommunications or electrical failures,
the primary business risks of the Company would include, but not be
limited to, loss of customers or orders, increased operating costs,
inability to obtain supplies and inventory on a timely basis,
disruptions in product shipments or other business interruptions of a
material nature, as well as possible legal actions, any of which could
have a material, adverse effect on the Company's business, results of
operations and financial condition.
The Company has also identified Trading Partners with whom it exchanges
electronic transmissions and has tested successfully the material means
of transmission utilized in such exchanges. The failure of customers to
place EDI orders or to remit EDI payments could have a short-term
impact on the operations of the Company.
Depreciation and amortization for the quarter was $19.6 million or 5.1%
of sales versus $18.7 million or 4.9% of sales in the first quarter a
year ago. While depreciation of plant and equipment increased only
1.7%, amortization of capitalized software is up approximately $400,000
over the preceding year.
Interest expense for the quarter was $7.5 million, down slightly from
$7.6 million last year. Total debt has been decreased by over $42
million from one year ago. The benefit of debt reduction has been
mostly mitigated by rising interest rates as compared to a year ago.
Interest income for the quarter increased $640,000 from the first
quarter of last year. Most of the increase is related to increased
returns on the cash surrender value of life insurance policies.
Some of the financial ratios for the twelve months ended October 31,
1999 were: Return on Net Sales of 5.1%, Return on Average Assets of
5.9%, and Return on Equity of 13.8%.
<PAGE> 10
Wallace Computer Services, Inc. and Subsidiaries Page 10
Notes to Consolidated Financial Statements
October 31, 1999
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
-------------------------------
Working capital decreased by $12.7 million from July 31, 1999,
primarily due to the increase in short-term notes payable, the proceeds
of which were used to fund the stock repurchase program. The current
ratio at October 31, 1999 was 2.1 to 1.
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.
Of the outstanding debt as of October 31, 1999, $190.0 million has been
borrowed under a five-year Credit Agreement ("Credit Facility"), which
provides for a maximum aggregate principal amount available to be
borrowed of $500 million. The borrowings under the Credit Facility are
classified as long-term debt as of October 31, 1999 since the Company
has the intent and ability to carry that debt long-term. The Company
has $200 million of Senior Term Notes with institutional investors with
a book value of $182.8 million classified as long-term debt with the
earliest maturity in 2006.
In addition to the credit facility and the senior notes, the Company
has unsecured money market lines of $125 million under which $47.0
million was borrowed at October 31, 1999. The $47.0 million from the
unsecured money market lines is classified as short-term debt.
Of the remaining long-term debt, $23.5 million is made up of industrial
revenue bonds at rates ranging from 3.5% to 3.6%. The balance of $11.5
million relates to acquisitions, $3.1 million to the former owners of
acquired businesses, with the rest being long-term debt from the
Graphic acquisition.
Total debt currently represents 43.6% of total capitalization. The
maximum amount as authorized by the Board of Directors for total
borrowings is limited to $600 million.
Capital expenditures for the quarter totalled $19.9 million. For the
full fiscal year, capital expenditures are expected to be in the range
of $62 to $64 million, which are expected to be financed through
internally generated funds and by borrowing against our revolving
credit facility.
Stockholders' equity increased 0.8% to $588.1 million at October 31,
1999.
Common Stock
-------------
On September 8, 1999, the Board of Directors increased the annualized
dividend rate to $0.66 per share, a 3.1% increase from fiscal 1999.
During the first quarter of fiscal 2000, the Company purchased 355,000
shares of Wallace common stock. Total repurchases through October 31,
1999 against the $100 million authorized by the Board in June 1997 have
been $57.5 million.
<PAGE> 11
Wallace Computer Services, Inc. and Subsidiaries Page 11
Notes to Consolidated Financial Statements
October 31, 1999
(Unaudited)
Part II Other Information
---------------------------------
Items 1 through 3 None
- ------------------
Item 4 Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Company held its annual meeting of stockholders on November 3, 1999. The
results of the three proposals put to a shareholder vote are as follows:
1) Election of directors for the class of directors
For Withheld
----------- ---------
Robert J. Cronin 34,895,928 412,936
Neele E. Stearns Jr. 34,910,844 398,020
Michael T. Riordan 34,901,582 407,282
2) Ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year 2000
For Against Abstain
---------- ------- -------
35,147,099 97,635 64,130
3) Approval of an amendment to the 1997 Stock Incentive Plan to increase the
number of shares of Common Stock reserved for issuance thereunder
For Against Abstain
---------- --------- -------
30,281,870 4,881,074 145,920
<PAGE> 12
Wallace Computer Services, Inc. and Subsidiaries Page 12
Notes to Consolidated Financial Statements
October 31, 1999
(Unaudited)
Item 5 Other Information
- ----------------------------------
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Certain statements in this filing and elsewhere (such as in other filings
by the Company with the Securities and Exchange Commission, press releases,
presentations by the Company or its management, and oral statements) may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other than statements
of historical facts, that address activities, events, or developments that the
Company expects or anticipates may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of the Company's and its subsidiaries' business and
operations, plans, references to future success and other such matters are
forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance or achievements of the Company to materially differ from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, general
economic, market or business conditions, changes in laws or regulations; the
opportunities (or lack thereof) that may be presented to and pursued by the
Company and its subsidiaries; successful integration of acquisitions; labor
market conditions; changes in postal rates and paper prices; the ability of the
Company to retain its customers who generally do not operate under long-term
contracts with the Company; the potential unpredictability of the Company's net
sales due to seasonal and other factors which can lead to fluctuations in
quarterly and annual operating results; the ability of the Company to keep pace
with technological advancements in the industry; the effect of technical
advancements on the demand for the Company's goods and services; and the risk of
damage to the Company's data centers and manufacturing facilities or
interruptions in the Company's telecommunications links.
Item 6 Exhibits and Reports on Form 8-K
- ------------------------------------------------------
(a) Exhibits
10.1 Wallace Computer Services, Inc. 1997 Stock Incentive Plan,
Amendment No. 1, dated September 8, 1999, filed herewith.
10.2 Wallace Computer Services, Inc. Executive Severance Pay
Plan, Amendment No. 3, dated December 8, 1999, filed
herewith.
10.3 Indemnification Agreement with Officer between the Company
and Craig Grant dated November 4, 1999 (form previously
filed as part of Exhibit 10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31, 1990,
and incorporated herein by reference to such report).
10.4 Addendum to Indemnification Agreement with Officer (Member
of Profit Sharing Committee) between the Company and Craig
Grant dated November 4, 1999 (form previously filed as part
of Exhibit 10 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1990, and incorporated
herein by reference to such report).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
<PAGE> 13
Page 13
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.
December 15, 1999 /s/ Robert J. Cronin
- ------------------- -------------------------------------------------------
Date Robert J. Cronin
Chairman of the Board and Chief Executive Officer
December 15, 1999 /s/ Michael T. Leatherman
- ------------------- -------------------------------------------------------
Date Michael T. Leatherman
Executive Vice President, Chief Administrative Officer,
and Chief Financial Officer
(Principal Accounting Officer)
<PAGE> 1
EXHIBIT 10.1
WALLACE COMPUTER SERVICES, INC.
1997 STOCK INCENTIVE PLAN
AMENDMENT NO. 1
WHEREAS, Wallace Computer Services, Inc., a Delaware corporation (the
"Company"), has heretofore adopted and maintains a stock option plan for the
benefit of certain of its employees designated the "Wallace Computer Services,
Inc. 1997 Stock Incentive Plan" (the "Plan");
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, pursuant to the power of amendment contained in
Section 4.2 of the Plan, Section 1.5 of the Plan is amended to delete the first
sentence thereof, and to substitute therefor a new sentence to read as follows:
Subject to adjustment as provided in Section 4.7, 4,000,000 shares of
Common Stock shall be available under this Plan, reduced by the sum of
the aggregate number of shares of Common Stock which become subject to
outstanding options.
NOW THEREFORE, this amendment is subject to the approval of the
shareholders of the Company at the 1999 Annual Meeting to be held November 3,
1999.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officers this 8th day of September, 1999.
WALLACE COMPUTER SERVICES, INC.
By: ______________________________
Chairman and CEO
ATTEST:
- ---------------------------
Secretary
<PAGE> 1
EXHIBIT 10.2
WALLACE COMPUTER SERVICES, INC.
EXECUTIVE SEVERANCE PAY PLAN
AMENDMENT NO. 3
WHEREAS, Wallace Computer Services, Inc., a Delaware corporation (the
"Company"), has heretofore adopted and maintains a severance pay plan for the
benefit of certain of its executive employees designated the "Wallace Computer
Services, Inc. Executive Severance Pay Plan" (the "Plan");
WHEREAS, the Company desires to amend the Plan in certain respects;
WHEREAS, Subsection 6.1 of the Plan permits the Company to amend the
Plan, subject to a limitation set forth in Subsection 6.2 of the Plan which
prohibits the amendment of the Plan on or after the occurrence of a "Material
Change" (as defined in the Plan) if such amendment is adverse to the interests
of Plan participants and their beneficiaries; and
WHEREAS, a Material Change has not occurred as of the date of the
adoption of this amendment;
NOW, THEREFORE, pursuant to the power of amendment contained in
Subsection 6.1 of the Plan, Subsection 1.2 of the Plan is amended by appending
the following sentence:
The term "subsidiary" shall also include any limited liability company
in which Wallace owns directly or indirectly, through an unbroken
chain, an interest sufficient to elect a majority of the managers of
that limited liability company.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officers this 8th day of December, 1999.
WALLACE COMPUTER SERVICES, INC.
By: _______________________________
President
ATTEST:
- ----------------------------
Secretary
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