Wallace Computer Services, Inc.

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Wallace Computer Services, Inc.

2275 Cabot Drive
Lisle, Illinois 60532-3630
Telephone: (630) 588-5000
Fax: (630) 588-5115
Web site: http://www.wallace.com

Public Company
1908 as Wallace Press, Inc.
Employees: 8,464
Sales: $1.53 billion (1999)
Stock Exchanges: New York
Ticker Symbol: WCS
NAIC: 323110 Commercial Lithographic Printing; 323113 Commercial Screen Printing; 323115 Digital Printing; 323116 Manifold Business Forms Printing

Wallace Computer Services, Inc. is a commercial printer and printer of business forms and labels with a history dating back to 1908. In addition, the company offers print management services to its corporate customers through its Total Print Management (TPM) program. Wallace operates more than 40 manufacturing facilities, nine distribution and warehousing hubs, and 150 sales locations. It has won numerous awards for excellence, both from customers such as American Airlines, Federal Ex-press, and Sears, Roebuck & Co., and from industry associations such as Printing Industries of America and the National Association for Printing Leadership, among others.

Operating As a Private Company: 190860

In 1908 the company was established as an Illinois commercial printer under the name Wallace Press, Inc. Its founder, Walter Franklin Wallace, Sr., was born in Chicago in 1881. He graduated from Yale University in 1903 and became a trade publication editor. Around this time he inherited a farm in suburban Chicago. In 1908 he sold the farm to buy a printing press and started Wallace Press, Inc. as a one-person commercial printer. One of his first customers was Sears, Roebuck & Co., for which he printed catalogs and manuals. By 1923 sales surpassed $1 million. In 1928 the company moved to a larger facility in downtown Chicago. Wallace received its first order for a business form in 1930. For the next several decades Wallace operated as a printer of business forms and labels as well as a commercial printer of brochures, catalogs, and other materials for business.

In 1952 the founders son, Walter F. Bob Wallace, Jr., took over as president of the company. He had attended North-western University and learned the printing business as a plant worker. In 1957 the company expanded and opened a second manufacturing location in Clinton, Illinois. The plants first order was shipped in early 1958, and overall the companys sales reached more than $12 million.

Period of Expansion: 1960s70s

In 1960 Wallace created a direct sales force to service forms users in all parts of the United States. In 1961 Wallace became a publicly held company, with its shares trading on the New York Stock Exchange. The company was reorganized in June 1963 as Wallace Business Forms, Inc., a Delaware corporation.

In 1966 Wallace expanded through acquisitions in the East and Southeast. It began construction of a new corporate headquarters and press division in Hillsdale, Illinois. The company also expanded into Virginia with its new plant in Luray. The plant broke even in its first year of operation.

In 1978 Wallace initiated a new strategy to become a single-source supplier and distributor of business forms, labels, and commercial and direct response printing. The company began to implement an aggressive acquisitions strategy that continued through the end of the century.

New Name Better Reflection of Companys Business: 1980s

In 1981 the company changed its name to Wallace Computer Services, Inc., to better reflect the wide range of products it sold to computer users, especially forms and labels. Toward the end of 1985 the Occupational Safety and Health Administration (OSHA) began requiring that drums of motor oil and other hazardous chemicals be specially labeled. This created a boon for label printers such as Wallace, which developed Printware, a computer program to generate labels on a personal computer. Printware saved customers the trouble of stocking large quantities of labels that would have to be discarded whenever a formula changed. With Printware, they could create a generic label, then print and create label variations as needed.

At the end of the 1980s, Wallace was the fifth largest producer of business forms in the United States. It had 27 consecutive years of increased sales and earnings and raised its dividend every year since 1973.

Innovations and Acquisitions Fueling Growth: 1990s

In 1990 Wallace completed a 300,000-square-foot distribution center in St. Charles, Illinois. It was the central point for ordering all stock items from Wallace. Wallaces revenues for fiscal 1991 ending July 31 were hurt by a nationwide recession that affected the business forms industry. In 1992 Wallace introduced W.I.N., the Wallace Information Network, which was the first Windows-based information management system in the printing industry. During the coming decade this system would attract customers and allow Wallace to expand into print management services for its customers.

In 1995 Wallace entered into an alliance with distributor United Stationers to improve its position in the contract stationers market, selling office supplies wholesale to large companies. It planned to use a variation of W.I.N. to offer one-stop shop-ping for office supplies. That same year Wallace also acquired Forms Engineering, a Los Angeles-based direct mail printer with about $38 million in annual sales, to complement its own direct mail division, Colorforms.

Also in 1995 rival Canadian printer Moore Corp. launched a $1.3 billion hostile takeover bid for Wallace. Based on an analysis by investment banker Goldman, Sachs & Co., Wallace rejected the bid. Later, minority shareholder Wyser-Pratte, a New York arbitrage firm, challenged Goldmans valuation of the company, claiming that Goldman inflated Wallaces value by as much as 18 percent. Wyser-Pratte owned about 2.7 percent of Wallaces stock.

Following Moores announced bid, Wallaces stock rose 33 percent. Wallace subsequently rejected a second, higher bid from Moore, which was the largest business forms printer in North America. Moore was losing U.S. market share to Wallace, in part because of Wallaces innovative W.I.N. system, which allowed customers to design and produce standard business documents, labels, and other forms on the computer, as well as manage inventory for both paper and electronic forms. Wallace would often run the systems onsite for its customers. Although Moore had a similar technology, Wallaces was more advanced. For fiscal 1995 ending July 31, Wallaces revenues were $713 million, compared with Moores revenues of $2.6 billion. Moore withdrew its bid for Wallace at the end of 1995.

Responding to increased growth, Wallace constructed a new 100,000-square-foot corporate headquarters in Lisle, Illinois, in 1996. During the year Wallace acquired Post Printing Inc., of West Bend, Wisconsin, which had about 80 employees and annual revenues around $8 million. For fiscal 1996, Wallace reported sales of $862.3 million, an increase of 21 percent over 1995. Earnings rose 32 percent to $73 million. Wallaces growth came at a time when the business forms printing industry was shrinking at the rate of about two percent a year; it was attributed in part to the success of the Wallace Information Network (W.I.N.). Newly acquired customers included large firms such as BankAmerica Corp. and Rubbermaid Inc. During the year Wallace expanded its capacity at existing plants. It opened a new distribution center in Los Angeles, added 100,000 square feet to a plant in Georgia, and increased its Tennessee plant by 75,000 square feet.

Wallaces strategy for growth was to become a business partner to its customers, not just a vendor. Among its alliances and partnerships, Wallace provided American Express Travel Management Services with a cost-effective solution to automate the travel expense reporting process. American Express characterized the partnership as a breakthrough in the development of electronic form applications. Wallace considered itself part of a network of relationships and alliances, many of which were based on five-year contracts. Wallaces emphasis had evolved from a pure product orientation to more of a service orientation. It had moved into forms management to manage the whole process of storage, distribution, and procurement. In many cases Wallace employees would run that business segment onsite at its customers location. The W.I.N. system gave Wallaces customers access to the companys internal operating systems, so customers could track inventory and orders. At the same time Wallace was building closer relationships with its own suppliers, in some cases outsourcing some aspects of its manufacturing. In the contract stationers market, Wallaces alliance with United Stationers allowed it to combine product categories and offer customers a broader range of office supplies.

Company Perspectives

The Company is recognized as a leading provider of sup-plies and print management services to Fortune 2000 customers. The Company is evolving to manage all the printing needs of large organizations. Products include commercial printing, business forms, labels, direct response printing and office products. The Companys strategy is to utilize its information management and distribution systems to offer customers a solutions-based approach to increasing efficiencies and reducing costs.

With the acquisition of Graphic Industries, Inc. in 1997 and the creation of the Wallace Integrated Graphics commercial press group, Wallace became one of the largest printers in North America. Graphic Industries owned the largest network of sheet-fed commercial printing plants in the United States. The Atlanta-based company focused on high-quality, short-to-medium run collateral and high color marketing materials and annual reports for Fortune 2000 customers. It had 20 manufacturing plants and $450 million in annual sales. The acquisition reduced Wallaces reliance on business forms, which accounted for 34 percent of Wallaces revenues before the acquisition and would contribute only 22 percent of Wallaces revenues after the combination. Overall, the $8 billion business forms industry was shrinking nearly four percent annually as companies replaced many forms applications with electronic systems. The $24 billion commercial printing market, on the other hand, was growing at two to three percent a year.

Wallace initially offered $18.50 a share for Graphic Indus-tries, or about $260 million, in September 1997. When another firm, envelope maker Mail-Well Inc., said it was prepared to offer $20 a share or more, Wallace raised its bid to $21.75 a share, or about $438 million in all, including the assumption of $130 million of Graphic Industries debt.

For fiscal 1997 ending July 31, Wallace reported a five percent increase in revenues to $906.3 million, although sales on a unit basis increased 12 percent. Earnings increased 11 percent to $81.3 million. In addition to the Graphic Industries acquisition, Wallace purchased Moran Printing Co. of Orlando, Florida, during the year. It also opened a label design center to assist customers in creating labels on demand with its Printware software package.

For fiscal 1998 ending July 31, sales surpassed $1 billion for the first time, increasing 50 percent to $1.36 billion due in large part to the acquisition of Graphic Industries. Net income, however, declined nine percent to $74.2 million. During the year Wallace entered into a joint marketing arrangement with Boise Cascade Office Products (BCOP), a subsidiary of Boise Cascade Corporation. Known as the BW Single Source Program, the agreement allowed each company to introduce the other company to its top 200 customers and allowed each company to market its products and services to those customers. Under the agreement, Wallace would provide custom printed products and central management services, while BCOP would supply stock office products and related supplies. In addition, both companies would provide customers with value-added services. In December 1998 Wallace sold its contract stationers business, Visible Computer Supply, to BCOP to increase the two companies joint marketing efforts.

It was in 1998 that Wallace created a new service called Total Print Management (TPM). Based on Wallaces enterprise-wide information system W.I.N., TPM provided greater control and efficiencies for buyers of commercial printing. This and other Wallace services were highly dependent on the companys Wallace Information Network (W.I.N.), which was introduced in 1992. The W.I.N. system included a suite of management tools applicable to customer processes, including inventory management, end-user ordering, version control, tracking, and follow-up. Nearly 500 Wallace customers were using the W.I.N. system by mid-1999.

In June 1998 Wallace acquired Good Decal Co., an Engle-wood, Colorado-based maker of pressure sensitive labels, decals, and screen printed graphic overlays, for $13.3 million. In February 1999 it sold Mercury Printing of Memphis, Tennessee, which was part of the Graphic Industries acquisition, for $7 million. Mercurys and Visible Computer Supplys product lines were not compatible with Wallaces strategic direction.

In May 1999 Wallace acquired Commercial Press, Inc., a San Diego-based commercial printer, for about $25 million. The acquisition brought Wallace up to 27 commercial print facilities across the United States. The same month Wallace acquired Denver Graphic, Inc., a small prime label company, for about $3 million. The acquisitions were part of Wallaces strategy to expand its commercial printing business.

At the beginning of 2000 CEO Robert Cronin retired. President and Chief Operating Officer Michael Duffield succeeded him as interim CEO. Duffield had served as president and COO of Wallace since August 1998, when CEO Cronin succeeded retiring Theodore Dimitriou as chairman of the company.

In February 2000 Wallace acquired Metro Printing, Inc., a commercial printer serving the Minneapolis-St. Paul, Minnesota market. The company had 125 employees and annual sales of $12 million. The acquisition was Wallaces 24th purchase of high-quality commercial printers that were being networked by Wallace as part of its Total Print Management (TPM) program. For fiscal 1999, TPM generated about 40 percent of Wallaces revenues, or more than $600 million.

Also in February Wallace announced several cost-cutting measures in an effort to improve earnings and cash flow. It closed unprofitable printing plants in Cleveland, Tampa, and Miami and began phasing out a multiple-use plant in Lebanon, Kentucky. In addition, about 300 jobs were eliminated, and certain underutilized assets were written off.

Key Dates

Company is established as an Illinois commercial printer under the name Wallace Press, Inc.
Sales surpass $1 million for the first time.
Wallace receives its first order for a business form.
Wallace creates a national direct sales force.
Wallace becomes a publicly held company on the New York Stock Exchange.
Company is reorganized as Wallace Business Forms, Inc.
Company changes its name to Wallace Computer Services, Inc.
Wallace introduces the Wallace Information Network (W.I.N.), the first Windows-based information management system in the printing industry.
Wallace rejects a hostile takeover bid from rival Canadian printer Moore Corporation Ltd.
Wallace acquires Graphics Industries, Inc.
Sales surpass $1 billion for the first time; company introduces Total Print Management service.

In June 2000 Wallace was ranked 29th in American Printers annual list of the Top 50 Fastest Growing Printers. It was the second consecutive year that Wallace appeared on the list. The companys sales had grown nearly 70 percent from 1997 to 1999, due in large part to its acquisition strategy. Since acquiring Graphic Industries in 1997, Wallace had expanded its commercial printing capabilities by acquiring commercial printers, which were organized under the companys Integrated Graphics division, to take advantage of the growth in the commercial printing market. At the same time, Wallace continued to decrease its reliance on printing business forms and labels, which were organized under the Forms and Labels division.

Principal Divisions

Integrated Graphics; Forms and Labels.

Principal Competitors

Moore Corp. Ltd. (Canada); Quebecor Inc. (Canada); R.R. Donnelley & Sons Co.; Consolidated Graphics Inc.

Further Reading

Amexco Pact, Travel Weekly, February 5, 1996, p. 66.

Avery, Susan, Boise Aligns with Wallace for Integrated Supply, Purchasing, March 26, 1998, p. 84.

Denny, Sharon, OSHA Regulations Bring Windfall to Label Makers, Oil Daily, March 17, 1986, p. Bll.

Duschene, Stephanie, Solving Problems with Someone Elses Solution, Graphic Arts Monthly, May 1999, p. S18.

Ezell, Hank, Founder of Atlanta-Based Industries to Step Aside, Assume Role as Consultant, Knight-Ridder/Tribune Business News, October 14, 1997.

Gerards Cross, Economist (US), August 5, 1995, p. 5.

Giese, William, 10 Good Stocks the Bulls Missed, Changing Times, June 1991, p. 51.

Gramig, Mickey H., Atlanta-Based Graphic Industries to Be Bought by Chicago-Based Company, Knight-Ridder/Tribune Business News, September 29, 1997.

Hajewski, Doris, Wisconsin Printing Company Sold to Illinois-Based Computer Firm, Knight-Ridder/Tribune Business News, October 25, 1996.

Hapaaniemi, Peter, The Best of Both Worlds, Chief Executive, June 1997, p. S12.

LaMonica, Paul R., Hard to Get, Financial World, May 20, 1996, p. 44.

Leibowitz, David S., This Time Wont Be Different, Financial World, May 30, 1989, p. 50.

Murphy, H. Lee, Expansion into Printing Holds Promise for Biz Forms Maker, But Wallace Faces Heavy Debt Load from Purchase, Grains Chicago Business, November 16, 1998, p. 49.

, Major Acquisition Will Take Wallace Beyond Biz Forms, Grains Chicago Business, October 6, 1997, p. 24.

, Wallace Diversified with Printing Buy, Grains Chicago Business, November 17, 1997, p. 26.

, Wallace Regains Its Balance After Navigating Hostile Waters, Grains Chicago Business, January 13, 1997, p. 24.

Osterland, Andrew, Popping Pills, Financial World, October 21, 1996, p. 36.

Picker, Ida, Robert Cronin of Wallace Computer Services: Double Trouble, Institutional Investor, February 1997, p. 29.

Rodrigues, Tanya, Local Pressroom Bought by Illinois-Based Firm, San Diego Business Journal, June 14, 1999, p. 30.

Second Opinion, Forbes, March 11, 1996, p. 18.

Wallace Completes Buy, Graphic Arts Monthly, February 2000, p. 28.

David P. Bianco

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