10-Q 1 0001.txt MAIL-WELL, INC. FORM 10-Q ======================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 Commission file number 1-12551 MAIL-WELL, INC. (Exact name of Registrant as specified in its charter.) COLORADO 84-1250533 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 23 Inverness Way East, Suite 160, Englewood, CO 80112 (Address of principal executive offices) (Zip Code) 303-790-8023 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECKMARK 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. Yes /X/ No / / As of August 1, 2000, the Registrant had 49,274,908 shares of Common Stock, $0.01 par value, outstanding. ======================================================================== 1 MAIL-WELL, INC. AND SUBSIDIARIES TABLE OF CONTENTS ---------------------------------------------------------------------------- PAGE Part I - FINANCIAL INFORMATION Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 Item 3. Quantitative and Qualitative Disclosures About Market Risk 27 Part II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securities Holders 28 Item 6. Exhibits and Reports on Form 8-K 28 Signature Page 31 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, 2000 DECEMBER 31, 1999 ------------- ----------------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $ 738 $ 3,618 Receivables, net 202,700 85,044 Investment in accounts receivable securitization 61,403 54,396 Accounts receivable -- other 19,530 20,764 Inventories, net 179,615 144,756 Net assets of discontinued operations 117,500 - Other current assets 37,979 25,551 ---------- ---------- Total current assets 619,465 334,129 PROPERTY, PLANT AND EQUIPMENT, NET 596,605 532,156 GOODWILL, NET 587,817 453,483 OTHER ASSETS, NET 43,745 24,273 ---------- ---------- TOTAL $1,847,632 $1,344,041 ========== ========== CURRENT LIABILITIES Accounts payable $ 149,788 $ 122,740 Accrued compensation and vacation 52,976 50,042 Other current liabilities 62,819 52,999 Current portion of long-term debt and capital leases 44,355 13,889 ---------- ---------- Total current liabilities 309,938 239,670 LONG-TERM DEBT AND CAPITAL LEASES 1,050,272 653,090 DEFERRED INCOME TAXES 59,417 64,112 OTHER LONG-TERM LIABILITIES 27,960 8,351 ---------- ---------- Total liabilities 1,447,587 965,223 MINORITY INTEREST IN NON VOTING STOCK OF SUBSIDIARY - 3,508 SHAREHOLDERS' EQUITY Preferred stock, $0.01 par value; 25,000 shares authorized, none issued and outstanding - - Common stock, $0.01 par value; 100,000,000 shares authorized, 49,276,934 and 49,215,078 shares issued and outstanding, respectively 493 492 Paid-in capital 220,049 219,795 Retained earnings 184,249 155,222 Accumulated other comprehensive income (loss) (4,746) (199) ---------- ---------- Total shareholders' equity 400,045 375,310 ---------- ---------- TOTAL $1,847,632 $1,344,041 ========== ========== See notes to unaudited consolidated financial statements.
3 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, JUNE 30, -------- -------- 2000 1999 2000 1999 ---- ---- ---- ---- NET SALES $584,902 $439,046 $1,134,544 $879,463 COST OF SALES 447,799 332,719 867,384 674,522 -------- -------- ---------- -------- GROSS PROFIT 137,103 106,327 267,160 204,941 OTHER OPERATING COSTS 96,172 67,410 180,762 128,396 OPERATING INCOME 40,931 38,917 86,398 76,545 OTHER (INCOME) EXPENSE Interest expense 23,944 14,049 42,936 26,816 Other (income) expense (207) (528) (329) (704) -------- -------- ---------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 17,194 25,396 43,791 50,433 PROVISION FOR INCOME TAXES 6,336 10,412 17,269 20,677 -------- -------- ---------- -------- INCOME FROM CONTINUING OPERATIONS 10,858 14,984 26,522 29,756 INCOME FROM DISCONTINUED OPERATIONS (LESS INCOME TAXES OF $243 and $663, RESPECTIVELY) 386 - 1,058 - -------- -------- ---------- -------- INCOME BEFORE EXTRAORDINARY ITEM 11,244 14,984 27,580 29,756 EXTRAORDINARY ITEM (LESS INCOME TAXES OF $907) - - 1,447 - -------- -------- ---------- -------- NET INCOME $ 11,244 $ 14,984 $ 29,027 $ 29,756 EARNINGS PER SHARE - BASIC CONTINUING OPERATIONS $ 0.22 $ 0.31 $ 0.54 $ 0.61 DISCONTINUED OPERATIONS 0.01 - 0.02 - EXTRAORDINARY ITEM - - 0.03 - EARNINGS PER SHARE - BASIC $ 0.23 $ 0.31 $ 0.59 $ 0.61 EARNINGS PER SHARE - DILUTED CONTINUING OPERATIONS $ 0.21 $ 0.28 $ 0.51 $ 0.56 DISCONTINUED OPERATIONS 0.01 - 0.01 - EXTRAORDINARY ITEM - - 0.03 - EARNINGS PER SHARE - DILUTED $ 0.22 $ 0.28 $ 0.55 $ 0.56 WEIGHTED AVERAGE SHARES - BASIC 49,273 48,967 49,251 48,915 WEIGHTED AVERAGE SHARES - DILUTED 57,116 58,350 57,466 58,300 See notes to unaudited consolidated financial statements.
4 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED ---------------- JUNE 30, -------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 29,027 $ 29,756 Adjustments to reconcile net income to cash provided by operations Depreciation and amortization 41,025 27,298 Extraordinary item pre-tax (2,354) - Deferred income taxes 4,661 5,790 Other (385) 2,317 Changes in operating assets and liabilities, net of effects of acquired businesses: Receivables (1,927) 8,932 Inventories (15,915) (11,797) Accounts payable 4,625 3,412 All other assets and other liabilities (11,458) 8,942 --------- --------- Net cash provided by operating activities 47,299 74,650 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired (327,702) (162,569) Capital expenditures (43,942) (39,693) Investment in equity securities, net (12,594) - Other investing activities 1,377 1,584 --------- --------- Net cash used in investing activities (382,861) (200,678) CASH FLOWS FROM FINANCING ACTIVITIES Changes due to accounts receivable securitization, net (73,500) 43,222 Proceeds from common stock issuance 255 703 Proceeds from long-term debt 940,119 241,805 Repayments of long-term debt and capital leases (516,482) (149,504) Debt issuance costs (14,164) - Other financing activities (3,500) (972) --------- --------- Net cash provided by financing activities 332,728 135,254 EFFECT OF EXCHANGE RATE CHANGES ON CASH (46) (4) --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (2,880) 9,222 BALANCE AT BEGINNING OF PERIOD 3,618 1,375 --------- --------- BALANCE AT END OF PERIOD $ 738 $ 10,597 ========= ========= See notes to unaudited consolidated financial statements.
5 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS -- Mail-Well, Inc. and subsidiaries (collectively referred to as the "Company") is a market leader in four highly fragmented segments of the printing industry. The Company is a leading commercial printer in the United States and manufactures and prints envelopes in the United States and Canada. The Company is also a printer of office products for the distributor market and labels for the food and beverage industry. PRINCIPLES OF CONSOLIDATION -- The Company, headquartered in Englewood, Colorado, is organized under Colorado law and its common stock is traded on the New York Stock Exchange. Mail-Well I Corporation ("MWI"), a wholly-owned subsidiary of Mail-Well, Inc., conducts most of the business of Mail-Well, Inc. MWI, together with its subsidiaries, is the owner of the Company's operating assets and the borrower of the debt (exclusive of the Convertible Subordinated Notes). All significant intercompany accounts and transactions have been eliminated. INTERIM FINANCIAL INFORMATION -- The interim financial information contained herein is unaudited and includes all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the information set forth. The consolidated financial statements should be read in conjunction with the Notes to the Consolidated Financial Statements, which are included in the Company's Form 10-K. The results for interim periods are not necessarily indicative of results to be expected for the Company's fiscal year ending December 31, 2000. INVENTORIES -- Detail of inventories, in thousands:
JUNE 30, 2000 DECEMBER 31, 1999 ------------- ----------------- Raw materials $ 65,362 $ 55,896 Work in process 40,479 32,020 Finished goods 79,695 61,620 Provision for obsolescence, loss and other (5,921) (4,780) -------- -------- $179,615 $144,756 ======== ========
SHAREHOLDERS' EQUITY--The change in Common Stock and Paid-in Capital is caused by the exercise of stock options. The change in Retained Earnings is net income. See "Other Comprehensive Income" for an explanation of the change in those accounts. OTHER COMPREHENSIVE INCOME -- Other comprehensive income includes changes in shareholders' equity that do not result directly from transactions with shareholders. A summary of comprehensive income follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- ------------- ------------- (in thousands) Net income $11,244 $14,984 $29,027 $29,756 Currency translation adjustments, net (3,775) 3,704 (4,492) 7,231 Unrealized gain on investments, net 90 184 (55) 218 ------- ------- ------- ------- Comprehensive income $ 7,559 $18,872 $24,480 $37,205 ======= ======= ======= =======
6 EARNINGS PER SHARE -- The unallocated shares issued under the Employee Stock Ownership Plan are excluded from both the basic and diluted earnings per share calculations.
INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FOR THE THREE MONTHS ENDED JUNE 30, 2000 EARNINGS PER SHARE - BASIC Income available to common shareholders $11,244 49,273 $0.23 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 524 Convertible Subordinated Notes 1,214 7,319 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $12,458 57,116 $0.22 ======= ====== ===== FOR THE THREE MONTHS ENDED JUNE 30, 1999 EARNINGS PER SHARE - BASIC Income available to common shareholders $14,984 48,967 $0.31 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 1,160 Convertible Subordinated Notes 1,313 8,003 Other - 220 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $16,297 58,350 $0.28 ======= ====== ===== FOR THE SIX MONTHS ENDED JUNE 30, 2000 EARNINGS PER SHARE - BASIC Income available to common shareholders $29,027 49,251 $0.59 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 566 Convertible Subordinated Notes 2,524 7,602 Other - 47 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $31,551 57,466 $0.55 ======= ====== ===== FOR THE SIX MONTHS ENDED JUNE 30, 1999 EARNINGS PER SHARE - BASIC Income available to common shareholders $29,756 48,915 $0.61 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 1,162 Convertible Subordinated Notes 2,626 8,003 Other - 220 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $32,382 58,300 $0.56 ======= ====== =====
RECLASSIFICATION -- Certain amounts in the 1999 financial statements have been reclassified to conform to the 2000 presentation. 7 2. ACQUISITIONS On January 28, 2000, the Company acquired Braceland Brothers, Inc., a commercial printing company located in Philadelphia, Pennsylvania, with approximate annual sales of $30.3 million. In February 2000, the Company acquired 13,450,588 shares (or 91% outstanding) of the common stock of Atlanta-based American Business Products ("ABP") for $20 per share in a cash tender offer. In the second step of the acquisition, ABP merged with a wholly owned subsidiary of the Company. The total value of the transaction, including the assumption of debt, was approximately $333.6 million. ABP is a premier provider of printed office products and specialty packaging solutions through its Curtis 1000, International Envelope, Discount Labels and Jen-Coat business units. ABP reported 1999 sales of $475.9 million and net income and fully diluted earnings per share from continuing operations of $19.7 million and $1.31, respectively. On May 24, 2000 the Company acquired Craftsman Litho, Inc., a commercial printing company located in Waterbury, Connecticut, with approximate annual sales of $12.8 million. On June 5, 2000, the Company acquired Strathmore Press, Inc., a commercial printing company located in Cherry Hills, New Jersey, with approximate annual sales of $15.0 million. These acquisitions have been accounted for as purchases and, accordingly, the net purchase price of each acquisition was allocated to the various assets and liabilities according to their estimated fair values as of the date of the respective purchase. The results of operations of each of the acquisitions have been included in the accompanying consolidated statements of operations from the date of the acquisition. Certain purchase agreements require the payment of additional consideration in the form of cash payments if specific operating performance criteria are met. Any subsequent payment will be allocated to goodwill. In addition, the purchase price allocation to inventory, property, plant and equipment and restructuring charges for closing certain plants for certain acquisitions have not been finalized. Therefore, the amount of goodwill could be adjusted within one year of the purchase. The table below presents the results of operations for the three- month and six-month periods ended June 30, 2000 and 1999 giving effect to the acquisition of ABP and the $800 million senior secured credit facility (See Note 3) as if they had occurred on January 1, 2000 and January 1, 1999, respectively. The table includes Jen-Coat as a discontinued operation (See Note 7 for further information).
(in thousands, except per share data) Three Months ended Six Months ended June 30 June 30 ----------------------- --------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $584,902 $521,121 $1,176,096 $1,043,634 Income from continuing operations $ 17,194 $ 15,230 $ 26,159 $ 31,410 Net income $ 11,244 $ 16,342 $ 29,197 $ 32,686 Income from continuing operations per share: Basic $ 0.22 $ 0.33 $ 0.53 $ 0.64 Diluted $ 0.21 $ 0.30 $ 0.50 $ 0.58 Net income per share: Basic $ 0.23 $ 0.33 $ 0.59 $ 0.67 Diluted $ 0.22 $ 0.30 $ 0.55 $ 0.61
8 3. LONG-TERM DEBT AND CAPITAL LEASES Long-term debt consists of the following (in thousands):
INTEREST RATE AT JUNE 30, 2000 JUNE 30, 2000 DECEMBER 31, 1999 ---------------- ------------- ----------------- Bank Borrowings: Unsecured loan, due June 9, 2003 6.88% $ 18,622 $ 21,876 Unsecured revolving loan facility, due March 31, 2003 - 172,000 Unsecured revolving loan facility, due July 31, 2000 6.43% 1,690 242 Secured revolving line of credit, due February 22, 2006 8.88% 64,000 - Secured Tranche A term loan, due February 22, 2006 8.88% 293,750 - Secured Tranche B term loan, due February 22, 2007 9.13% 249,375 - Senior Subordinated Notes, due 2008 8.75% 300,000 300,000 Convertible Subordinated Notes, due 2002 5.00% 139,063 152,050 Other Various 28,127 20,811 ---------- -------- 1,094,627 666,979 Less current maturities (44,355) (13,889) ---------- -------- Long-term debt and capital leases $1,050,272 $653,090 ========== ========
On February 18, 2000, the Company entered into a $800 million senior secured credit facility (the "New Facility"). The proceeds were used to finance the acquisition of ABP, pay related costs and expenses, refinance the unsecured revolving loan facilities, and reduce the amounts drawn under the accounts receivable securitization (see Note 5), with the remainder to provide funds for general corporate purposes. The availability under the unsecured uncommitted revolving loan facility, due July 31, 2001, was reduced from $20 million to $10 million. The unsecured revolving loan facility, due March 31, 2003 was terminated. The New Facility consists of a $250 million revolving line of credit, a $300 million Tranche A term loan and a $250 million Tranche B term loan. The Company is required to repay $25 million of principal in the first year of the Tranche A term loan, with increases of $10 million a year until a $75 million payment in the sixth year. The Company is required to pay $2.5 million per year on the Tranche B term loan, with a balloon payment in 2007 of $233 million. Any optional prepayments of principal must be applied proportionately among the Tranche A and B term loans. The revolving line may be paid down at any time at the option of the Company. The New Facility contains certain financial and other covenants that are customary for credit facilities of its type and size. The New Facility is secured by substantially all tangible and intangible property of U.S. entities, except for the accounts receivable sold under the securitization program and certain property and equipment under lease obligations. In 2000, the Company wrote off deferred financing costs of $635,000 (net of $244,000 of income tax benefits) capitalized in connection with the bank debt which was repaid in February, 2000. The write-off is shown as an extraordinary item in the statement of operations. Also, in March 2000, the Company repurchased $12,987,000 of the outstanding Convertible Subordinated Notes at a discount and recorded a gain of $2,989,000 (net of $1,151,000 of income tax expense), which is shown as an extraordinary item in the statement of operations. 9 4. RESTRUCTURING CHARGES In November 1998, the Company committed to implement a restructuring program affecting the Envelopes and Commercial Printing segments and recorded a pre-tax provision of $15,961,000, of which $11,699,000 represented non-cash charges for asset write-offs and impairments, primarily machinery and equipment. Impairment losses were calculated based on the excess of the carrying amount of the assets over the assets' fair values. The fair value of an asset is generally determined based on recent comparable sales and independent quotes from the used equipment market. The remaining $4,262,000 was for severance, other termination benefits and property exit costs, including noncancelable operating leases. These charges were a result of the regionalization of the Company's U.S. Envelopes operations and reorganization of the Company's Commercial Printing operations, primarily in the Northwest. The Company also incurred $499,000 and $998,000 in expenses for the three months and six months ended June 30, 1999, respectively, relating to the relocation of personnel, equipment and inventory, which under generally accepted accounting principles could not be accrued for as part of the Company's restructuring initiative. These costs are included in "Selling, administrative and other" in the consolidated statements of operations. Severance costs for the 616 personnel included in the restructuring provision resulted from regionalizing special manufacturing operations (490 personnel) and administrative functions (126 personnel) in various locations of the Company's U.S. operations. Approximately 570 personnel had been terminated as of June 30, 2000. The remaining property exit costs are for one lease, which has been exited for a cost of $600,000 plus legal fees in July 2000. The following table summarizes the costs associated with the restructuring program (in thousands):
ASSET SEVERANCE & PROPERTY WRITE-DOWNS RELATED COSTS EXIT COSTS TOTAL ----------- ------------- ---------- ----- Initial reserve $11,699 $2,907 $1,355 $15,961 Utilized in 1998 (10,104) (523) (81) (10,708) ------- ------ ------ ------- Balance 12/31/98 1,595 2,384 1,274 5,253 Utilized in 1999 (591) (1,608) (1,011) (3,210) Transferred 19 (418) 399 - ------- ------ ------ ------- Balance 12/31/99 1,023 358 662 2,043 Additions in 2000 - - 56 56 Utilized in 2000 (833) (358) (298) (1,489) Transferred (190) - 190 - ------- ------ ------ ------- Balance 6/30/00 $ - $ - $ 610 $ 610 ======= ====== ====== =======
10 5. COMMITMENTS AND CONTINGENCIES In July 1999, the Company and certain of its subsidiaries ("Originators") entered into an agreement to sell, on a revolving basis, trade receivables to a wholly-owned subsidiary, Mail-Well Trade Receivables Corp. ("MTRC"). MTRC was capitalized by the Company as a bankruptcy-remote special purpose entity that is subject to certain covenants and restrictions, including a restriction from engaging in any business or activity unrelated to acquiring and selling interests in receivables. New receivables, except those failing certain eligibility criteria, are sold to MTRC on a daily basis as previously sold accounts receivables are collected. MTRC, in turn, sells an undivided variable percentage interest in the pool of receivables, up to a maximum of $75 million (reduced from $150 million at December 31, 1999), to a multi- seller receivables securitization company, for which there are no repurchase agreements. The Company maintains a subordinated interest in the portion of the pooled receivables, which are not transferred to the securitization company. The Company's securitization is accounted for as a sale in accordance with FASB Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Therefore, the Company's accounts receivable have been reduced by the amount of receivables sold to MTRC and the retained interest in the pool of receivables has been reported as an investment available for sale, recorded at its estimated fair value. An allowance for doubtful accounts is also maintained for both receivables not included in the pool and for its retained interest in the pool. As of June 30, 2000, the Company had sold $140.0 million of accounts receivable to MTRC and MTRC had sold beneficial interests totaling $75.0 million to the securitization company. The Company is involved in various lawsuits incidental to its businesses. In management's opinion, it is not probable that an adverse determination against the Company relating to these suits would occur that would be material to the consolidated financial statements. 6. SEGMENT INFORMATION The Company's operating segments prepare separate financial information that is evaluated regularly by the Chief Operating Officer in assessing performance and deciding how to allocate resources. Corporate expenses include the costs of maintaining a corporate office. The Company does not allocate corporate overhead, interest (income) expense, amortization expense, gains and losses on disposal of assets or income taxes by segment in assessing performance. Operating segments of the Company are defined primarily by product line and consist of Commercial Printing, Envelope, Label and Printed Office Products. ABP segments were included in Mail-Well's segments as follows: Curtis 1000 is included in Printed Office Products; International Envelope, Envelope; Label Lynx, Label; and Discount Labels, Printed Office Products. The segment information that follows excludes the Jen-Coat operation, which is shown as a discontinued operation in the consolidated statements of operations for the three months and six months periods ended June 30, 2000. See Note 7 for further information. 11 Two locations were reclassified from Envelope to Commercial Printing and Printed Office Products, respectively, since the 1999 Form 10-K. Label Lynx was reclassified from Printed Office Products to Label since the March 31, 2000 Form 10-Q. Segment information for all periods has been restated to reflect these changes. Segment information as of and for the three and six months ended June 30, 2000 and 1999 is presented below:
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- NET SALES TO EXTERNAL CUSTOMERS: Commercial Printing $222,282 $168,100 $ 445,682 $354,178 Envelope 209,410 176,543 411,763 371,066 Printed Office Products 94,295 41,277 163,514 76,226 Label 58,915 53,126 113,585 77,993 -------- -------- ---------- -------- Total $584,902 $439,046 $1,134,544 $879,463 ======== ======== ========== ======== OPERATING INCOME (LOSS): Commercial Printing $ 14,934 $ 13,827 $ 32,627 $ 28,253 Envelope 19,653 22,856 41,795 47,258 Printed Office Products 9,439 4,049 17,632 7,008 Label 4,388 3,941 7,939 5,622 Corporate (7,483) (5,756) (13,595) (11,596) -------- -------- ---------- -------- Total $ 40,931 $ 38,917 $ 86,398 $ 76,545 ======== ======== ========== ======== DEPRECIATION AND AMORTIZATION: Commercial Printing $ 6,711 $ 5,516 $ 13,206 $ 10,592 Envelope 5,518 3,954 10,140 7,750 Printed Office Products 2,342 665 3,698 1,196 Label 1,985 1,736 3,940 2,859 Corporate 3,006 2,219 6,169 3,895 -------- -------- ---------- -------- Total $ 19,562 $ 14,090 $ 37,153 $ 26,292 ======== ======== ========== ======== June 30, December 31, 2000 1999 ---- ---- IDENTIFIABLE ASSETS: Commercial Printing $ 707,639 $ 637,013 Envelope 578,510 530,733 Printed Office Products 278,358 124,394 Label 226,138 218,023 Net Assets of Discontinued Operations 117,500 - Corporate (60,513) (166,122) ---------- ---------- Total assets $1,847,632 $1,344,041 ========== ==========
Intercompany sales by segment include $1,015,000, $4,039,000, $2,776,000 and $1,189,000 for Commercial Printing, Envelope, Printed Office Products & Label, respectively for the three months of 2000 and $2,684,000, $5,666,000, $3,809,000 and $1,598,000, respectively for the six months of 2000. These amounts have been eliminated in consolidation and are excluded from the amounts above. Depreciation and amortization shown above excludes depreciation and amortization for the discontinued operation. 12 7. SUBSEQUENT EVENTS In November 1996, the Company refinanced certain equipment under a sale/leaseback arrangement. In 1997, the Company reacquired the equipment from the original lessor and sold and leased back such equipment from a new buyer-lessor. In August 2000, the Company entered into a renewed lease related to substantially the same pool of equipment, which added certain additional pieces as substitute for previously disposed equipment for a total fair value of approximately $23 million. In addition, the Company refinanced a new pool of equipment under a sale/leaseback arrangement with a fair value of $19 million. The proceeds were used to pay down the secured revolving line of credit. The leasebacks are classified as operating leases. At the end of the six year lease term, the Company may either (1) purchase the equipment for a specified amount, (2) sell the equipment on behalf of the lessor, or (3) return the equipment to the lessor for a fee. If the Company elects to return the equipment to the lessor at the end of the lease term, the Company has guaranteed a residual value of $16.4 million for the benefit of the lessor. In July 2000, the company signed a letter of intent to sell Jen- Coat, its extrusion coating and laminating segment. The transaction is scheduled to close approximately September 30, 2000. Net proceeds to the company will be approximately $100 million and will be used primarily to reduce debt. The operating results of this operation are reported as a discontinued operation in the consolidated statements of operations for the three months and six months periods ended June 30, 2000 and the net assets are shown as a separate category of current assets in the consolidated balance sheets as of June 30, 2000. In July 2000, the Board of Directors approved the purchase on the open market of up to $10 million of its common stock at prevailing market levels, at such time and on such terms as the Company is permitted under the rules and regulations of the Securities Exchange Commission and New York Stock Exchange. On July 25, 2000, the Company acquired CML Industries Ltd., a supplier of envelopes and paper converted products located in Ontario and Quebec, Canada, with approximate annual sales of $29.7 million. 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION In December 1998, MWI ("Issuer" or "MWI"), the Company's wholly- owned subsidiary, and the only direct subsidiary of the Company, issued $300.0 million aggregate principal amount of 8 3/4% Senior Subordinated Notes ("Senior Notes") due in 2008. The Senior Notes are guaranteed by the majority of the U.S. subsidiaries (the "Guarantor Subsidiaries") of MWI, all of which are wholly owned, and by Mail-Well, Inc. ("Parent Guarantor"). The guarantees are joint and several, full, complete and unconditional. There are no material restrictions on the ability of the Guarantor Subsidiaries to transfer funds to MWI in the form of cash dividends, loans or advances, other than ordinary legal restrictions under corporate law, fraudulent transfer and bankruptcy laws. The following condensed consolidating financial information illustrates the composition of the Parent Guarantor, Issuer, Guarantor Subsidiaries and non-guarantor subsidiaries. The Issuer, the Guarantor Subsidiaries and the non-guarantor subsidiaries comprise all of the direct and indirect subsidiaries of the Parent Guarantor. Management has determined that separate complete financial statements would not provide additional material information that would be useful in assessing the financial composition of the Guarantor Subsidiaries. Investments in subsidiaries are accounted for under the equity method, wherein the investor company's share of earnings and income taxes applicable to the assumed distribution of such earnings are included in net income. In addition, investments increase in the amount of permanent contributions to subsidiaries and decrease in the amount of distributions from subsidiaries. The elimination entries eliminate the equity method investment in subsidiaries and the equity in earnings of subsidiaries, intercompany payables and receivables and other transactions between subsidiaries. 13 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Quarter Ended June 30, 2000 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated --------- ------ ------------ ------------ ------------ ------------ NET SALES $ - $110,180 $414,191 $60,531 $ - $584,902 COST OF SALES - 88,856 313,326 45,617 - 447,799 ------- -------- -------- ------- -------- -------- GROSS PROFIT - 21,324 100,865 14,914 - 137,103 OTHER OPERATING COSTS 59 17,822 70,970 7,321 - 96,172 ------- -------- -------- ------- -------- -------- OPERATING INCOME (LOSS) (59) 3,502 29,895 7,593 - 40,931 OTHER (INCOME) EXPENSE Interest expense 1,972 22,152 8,582 (1,190) (7,572) 23,944 Other (income) expense (2,211) (5,261) (510) 203 7,572 (207) ------- -------- -------- ------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 180 (13,389) 21,823 8,580 - 17,194 PROVISION (BENEFIT) FOR INCOME TAXES - (4,935) 8,116 3,155 - 6,336 ------- -------- -------- ------- -------- -------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 180 (8,454) 13,707 5,425 - 10,858 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 11,064 21,141 4,590 - (36,795) - ------- -------- -------- ------- -------- -------- INCOME FROM CONTINUING OPERATIONS 11,244 12,687 18,297 5,425 (36,795) 10,858 DISCONTINUED OPERATIONS - (1,623) 2,009 - - 386 ------- -------- -------- ------- -------- -------- NET INCOME $11,244 $ 11,064 $ 20,306 $ 5,425 $(36,795) $ 11,244 ======= ======== ======== ======= ======== ========
14 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Quarter Ended June 30, 1999 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated --------- ------ ------------ ------------ ------------ ------------ NET SALES $ - $88,080 $271,338 $79,628 $ - $439,046 COST OF SALES - 67,450 208,618 56,651 - 332,719 ------- ------- -------- ------- -------- -------- GROSS PROFIT - 20,630 62,720 22,977 - 106,327 OTHER OPERATING COSTS 43 15,599 38,092 13,676 - 67,410 ------- ------- -------- ------- -------- -------- OPERATING INCOME (LOSS) (43) 5,031 24,628 9,301 - 38,917 OTHER (INCOME) EXPENSE Interest expense 2,136 11,671 518 1,936 (2,212) 14,049 Other (income) expense (2,206) (36) (658) 160 2,212 (528) ------- ------- -------- ------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES AND EXTRAORDINARY ITEM 27 (6,604) 24,768 7,205 - 25,396 PROVISION (BENEFIT) FOR INCOME TAXES - (2,706) 11,222 1,896 - 10,412 ------- ------- -------- ------- -------- -------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES AND EXTRAORDINARY ITEM 27 (3,898) 13,546 5,309 - 14,984 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 14,957 18,855 5,309 - (39,121) - ------- ------- -------- ------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 14,984 14,957 18,855 5,309 (39,121) 14,984 EXTRAORDINARY ITEM - - - - - - ------- ------- -------- ------- -------- -------- NET INCOME $14,984 $14,957 $ 18,855 $ 5,309 $(39,121) $ 14,984 ======= ======= ======== ======= ======== ========
15 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Six-months Ended June 30, 2000 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated --------- ------ ------------ ------------ ------------ ------------ NET SALES $ - $225,878 $737,399 $171,267 $ - $1,134,544 COST OF SALES - 180,978 561,665 124,741 - 867,384 ------- -------- -------- -------- -------- ---------- GROSS PROFIT - 44,900 175,734 46,526 - 267,160 OTHER OPERATING COSTS 101 34,707 120,114 25,840 - 180,762 ------- -------- -------- -------- -------- ---------- OPERATING INCOME (LOSS) (101) 10,193 55,620 20,686 - 86,398 OTHER (INCOME) EXPENSE Interest expense 4,088 39,164 15,678 (851) (15,143) 42,936 Other (income) expense (4,423) (10,865) (542) 358 15,143 (329) ------- -------- -------- -------- -------- ---------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 234 (18,106) 40,484 21,179 - 43,791 PROVISION (BENEFIT) FOR INCOME TAXES - (6,896) 15,789 8,376 - 17,269 ------- -------- -------- -------- -------- ---------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 234 (11,210) 24,695 12,803 - 26,522 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 26,955 40,863 8,749 - (76,567) - ------- -------- -------- -------- -------- ---------- INCOME FROM CONTINUING OPERATIONS 27,189 29,653 33,444 12,803 (76,567) 26,522 DISCONTINUED OPERATIONS - (2,307) 2,009 1,356 - 1,058 ------- -------- -------- -------- -------- ---------- INCOME BEFORE EXTRAORDINARY ITEM 27,189 27,346 35,453 14,159 (76,567) 27,580 EXTRAORDINARY ITEM 1,838 (391) - - - 1,447 ------- -------- -------- -------- -------- ---------- NET INCOME $29,027 $ 26,955 $ 35,453 $ 14,159 $(76,567) $ 29,027 ======= ======== ======== ======== ======== ==========
16 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Six-months Ended June 30, 1999 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated --------- ------ ------------ ------------ ------------ ------------ NET SALES $ - $189,275 $561,858 $128,330 $ - $879,463 COST OF SALES - 147,333 434,457 92,732 - 674,522 ------- -------- -------- -------- -------- -------- GROSS PROFIT - 41,942 127,401 35,598 - 204,941 OTHER OPERATING COSTS 111 31,583 77,505 19,197 - 128,396 ------- -------- -------- -------- -------- -------- OPERATING INCOME (LOSS) (111) 10,359 49,896 16,401 - 76,545 OTHER (INCOME) EXPENSE Interest expense 4,271 21,832 (1,024) 3,688 (4,424) 24,343 Accounts rec. securitization discount - 445 2,028 - 2,473 Other (income) expense (4,423) (338) (645) 278 4,424 (704) ------- -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 41 (11,580) 49,537 12,435 - 50,433 PROVISION (BENEFIT) FOR INCOME TAXES - (4,746) 21,462 3,961 - 20,677 ------- -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 41 (6,834) 28,075 8,474 - 29,756 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 29,715 36,549 8,474 - (74,738) - ------- -------- -------- -------- -------- -------- NET INCOME $29,756 $ 29,715 $ 36,549 $ 8,474 $(74,738) $ 29,756 ======= ======== ======== ======== ======== ========
17 CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION June 30, 2000 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated --------- ------ ------------ ------------ ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ - $ 10,191 $ (10,521) $ 1,068 $ - $ 738 Receivables, net - 2,899 163,363 36,438 - 202,700 Investment in accounts receivable Securitization - - - 61,403 - 61,403 Accounts receivable - other - 10,924 8,231 375 - 19,530 Inventories, net - 49,371 106,046 24,198 - 179,615 Net assets of discontinued operations - - 117,500 - - 117,500 Note receivable from Issuer 147,436 - - - (147,436) - Other current assets 436 53,128 11,804 2,588 (29,977) 37,979 -------- ---------- ---------- -------- ----------- ---------- Total current assets 147,872 126,513 396,423 126,070 (177,413) 619,465 INVESTMENT IN SUBSIDIARIES 399,981 998,049 53,220 - (1,451,250) - PROPERTY, PLANT AND EQUIPMENT, NET - 129,576 384,136 82,893 - 596,605 GOODWILL, NET - 48,292 464,010 75,515 - 587,817 NOTES RECEIVABLE FROM SUBSIDIARIES - 245,000 - - (245,000) - OTHER ASSETS, NET 3,963 50,727 19,654 4,074 (34,673) 43,745 -------- ---------- ---------- -------- ----------- ---------- TOTAL $551,816 $1,598,157 $1,317,443 $288,552 $(1,908,336) $1,847,632 ======== ========== ========== ======== =========== ========== CURRENT LIABILITIES Accounts payable $ - $ 27,830 $ 104,191 $ 17,767 $ - $ 149,788 Accrued compensation and vacation - 10,207 36,966 5,803 - 52,976 Other current liabilities 12,708 20,011 (62,007) 122,084 (29,977) 62,819 Note payable to Parent - 147,436 - - (147,436) - Current portion of long-term debt and capital leases - 30,952 3,340 10,063 - 44,355 -------- ---------- ---------- -------- ----------- ---------- Total current liabilities 12,708 236,436 82,490 155,717 (177,413) 309,938 LONG-TERM DEBT AND CAPITAL LEASES 139,063 877,191 14,031 19,987 - 1,050,272 NOTES PAYABLE TO ISSUER - - 245,000 - (245,000) - DEFERRED INCOME TAXES - 62,313 - 11,785 (14,681) 59,417 OTHER LONG-TERM LIABILITIES - 22,236 25,092 624 (19,992) 27,960 -------- ---------- ---------- -------- ----------- ---------- Total liabilities 151,771 1,198,176 366,613 188,113 (457,086) 1,447,587 SHAREHOLDERS' EQUITY 400,045 399,981 950,830 100,439 (1,451,250) 400,045 -------- ---------- ---------- -------- ----------- ---------- TOTAL $551,816 $1,598,157 $1,317,443 $288,552 $(1,908,336) $1,847,632 ======== ========== ========== ======== =========== ==========
18 CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION December 31, 1999 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated --------- ------ ------------ ------------ ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ - $ 27,667 $ (28,003) $ 3,954 $ - $ 3,618 Receivables, net - 87 35,860 49,097 - 85,044 Investment in accounts receivable Securitization - - - 54,396 - 54,396 Accounts receivable - other - 8,572 10,004 2,188 - 20,764 Inventories, net - 36,337 82,277 26,142 - 144,756 Note receivable from Issuer 147,436 - - - (147,436) - Other current assets 345 24,247 3,597 4,348 (6,986) 25,551 -------- ---------- --------- -------- ----------- ---------- Total current assets 147,781 96,910 103,735 140,125 (154,422) 334,129 INVESTMENT IN SUBSIDIARIES 377,318 663,928 48,574 - (1,089,820) - PROPERTY, PLANT AND EQUIPMENT, NET - 104,938 323,180 104,038 - 532,156 GOODWILL, NET - 45,460 279,252 128,771 - 453,483 NOTE RECEIVABLE FROM SUBSIDIARIES - 245,000 - - (245,000) - OTHER ASSETS, NET 2,943 32,517 3,851 8,432 (23,470) 24,273 -------- ---------- --------- -------- ----------- ---------- TOTAL $528,042 $1,188,753 $ 758,592 $381,366 $(1,512,712) $1,344,041 ======== ========== ========= ======== =========== ========== CURRENT LIABILITIES Accounts payable $ - $ 19,499 $ 79,447 $ 23,794 $ - $ 122,740 Accrued compensation and vacation - 8,388 32,638 9,016 - 50,042 Other current liabilities 682 99,317 (163,815) 123,801 (6,986) 52,999 Note payable to parent - 147,436 - - (147,436) - Current portion of long-term debt And capital leases - 674 4,652 8,563 - 13,889 -------- ---------- --------- -------- ----------- ---------- Total current liabilities 682 275,314 (47,078) 165,174 (154,422) 239,670 LONG-TERM DEBT AND CAPITAL LEASES 152,050 472,180 6,690 22,170 - 653,090 NOTE PAYABLE TO ISSUER - - 245,000 - (245,000) - DEFERRED INCOME TAXES - 57,881 - 9,709 (3,478) 64,112 OTHER LONG-TERM LIABILITIES - 2,560 25,160 623 (19,992) 8,351 -------- ---------- --------- -------- ----------- ---------- Total liabilities 152,732 807,935 229,772 197,676 (422,892) 965,223 MINORITY INTEREST - 3,500 - 8 - 3,508 SHAREHOLDERS' EQUITY 375,310 377,318 528,820 183,682 (1,089,820) 375,310 -------- ---------- --------- -------- ----------- ---------- TOTAL $528,042 $1,188,753 $ 758,592 $381,366 $(1,512,712) $1,344,041 ======== ========== ========= ======== =========== ==========
19 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS Six-months ended June 30, 2000 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated --------- ------ ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES $(4,441) $ (32,691) $106,926 $ (22,495) $ - $ 47,299 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired - - (32,155) (295,547) - (327,702) Capital expenditures - (5,734) (30,892) (7,316) - (43,942) Investment in marketable securities, net (1,500) (110) 1,158 (12,142) - (12,594) Investment in subsidiaries (255) (362,584) - - 362,839 - Other investing activities 15,939 (10,819) (6,307) 76,064 (73,500) 1,377 ------- --------- -------- --------- --------- --------- Net cash used in investing activities 14,184 (379,247) (68,196) (238,941) 289,339 (382,861) CASH FLOWS FROM FINANCING ACTIVITIES Changes due to accounts receivable securitization, net - (22,784) (50,716) (73,500) 73,500 (73,500) Net proceeds from common stock issuance 255 - - - - 255 Proceeds from long-term debt - 935,000 - 5,119 - 940,119 Repayments of long-term debt and capital lease obligations (9,998) (500,345) (2,487) (3,652) - (516,482) Debt issuance costs - (14,164) - - - (14,164) Investment by parent - 255 31,955 330,629 (362,839) - Other financing activities - (3,500) - - - (3,500) ------- --------- -------- --------- --------- --------- Net cash provided by financing activities (9,743) 394,462 (21,248) 258,596 (289,339) 332,728 EFFECT OF EXCHANGE RATE CHANGES ON CASH - - - (46) - (46) ------- --------- -------- --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS - (17,476) 17,482 (2,886) - (2,880) BALANCE AT BEGINNING OF YEAR - 27,667 (28,003) 3,954 - 3,618 ------- --------- -------- --------- --------- --------- BALANCE AT END OF YEAR $ - $ 10,191 $(10,521) $ 1,068 $ - $ 738 ======= ========= ======== ========= ========= =========
20 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS Six-months ended June 30, 1999 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated --------- ------ ------------ ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES $ 4,251 $ 72,358 $ (8,941) $ 6,982 $ - $ 74,650 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired - - (73,548) (89,021) - (162,569) Capital expenditures - (4,971) (30,290) (4,432) - (39,693) Investment in subsidiaries - (158,313) (91,649) - 249,962 - Other investing activities (4,954) 1 4,898 936 703 1,584 ------- --------- --------- --------- --------- --------- Net cash used in investing activities (4,954) (163,283) (190,589) (92,517) 250,665 (200,678) CASH FLOWS FROM FINANCING ACTIVITIES Changes due to accounts receivable securitization, net - 5,434 37,788 - - 43,222 Net proceeds from common stock issuance 703 - - - - 703 Proceeds from long-term debt - 232,000 - 9,805 - 241,805 Repayments of long-term debt and capital lease obligations - (138,010) (1,472) (10,022) - (149,504) Investment by parent 703 158,313 91,649 (250,625) - Other financing activities - (1,117) 145 - - (972) ------- --------- --------- --------- --------- --------- Net cash provided by financing activities 703 99,010 194,774 91,432 (250,625) 135,254 EFFECT OF EXCHANGE RATE CHANGES ON CASH - - - (4) - (4) ------- --------- --------- --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS - 8,085 (4,756) 5,893 - 9,222 BALANCE AT BEGINNING OF YEAR - 6,952 (7,311) 1,734 - 1,375 ------- --------- --------- --------- --------- --------- BALANCE AT END OF YEAR $ - $ 15,037 $ (12,067) $ 7,627 $ - $ 10,597 ======= ========= ========= ========= ========= =========
21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The following should be read in conjunction with the consolidated historical financial statements and related notes of Mail-Well, Inc. and its subsidiaries (the "Company") included elsewhere in this report. In addition to the historical information contained herein, this report contains forward-looking statements. The reader of this information should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company's actual results could differ materially from those suggested by such forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the following: * paper and other raw material costs and the ability to pass through paper costs to customers * general labor conditions * ability to obtain productivity savings * postage rates and other changes in the direct mail industry * competition from electronic media, including the internet * demand for printed materials * interest rates and foreign currency exchange rates * ability to obtain additional financing * availability of acquisition opportunities and their related costs * ability to achieve cost savings from integration of acquisitions This entire report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company's business. OVERVIEW, HISTORICAL FINANCIAL DATA BY SEGMENT (IN THOUSANDS) The following table presents historical financial data by segment, including acquisitions from their purchase dates.
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net sales Commercial Printing $222,282 $168,100 $ 445,682 $354,178 Envelope 209,410 176,543 411,763 371,066 Printed Office Products 94,295 41,277 163,514 76,226 Label 58,915 53,126 113,585 577,993 -------- -------- ---------- -------- Total net sales $584,902 $439,046 $1,134,544 $879,463 ======== ======== ========== ======== Operating income Commercial Printing $ 14,934 $ 13,827 $ 32,627 $ 28,253 Envelope 19,653 22,856 41,795 47,258 Printed Office Products 9,439 4,049 17,632 7,008 Label 4,388 3,941 7,939 5,622 Corporate (7,483) (5,756) (13,595) (11,596) -------- -------- ---------- -------- Total operating income 40,931 38,917 86,398 76,545 Interest expense (23,944) (14,049) (42,936) (26,816) Other income (expense) 207 528 329 704 Income tax expense (6,336) (10,412) (17,269) (20,677) -------- -------- ---------- -------- Income from continuing operations $ 10,858 $ 14,984 $ 26,522 $ 29,756 ======== ======== ========== ========
22 Net sales for the quarter ended June 30, 2000 increased 33.2% to $584.9 million compared to net sales of $439.0 million for the quarter ended June 30, 1999. This increase in net sales was attributable to sales from companies acquired during 2000, a full quarter of sales from companies acquired during 1999 and internal growth in Commercial Printing and Label offset by a decline in pricing within the Envelope segment. Gross profit of $137.1 million for the quarter ended June 30, 2000 represents a 28.9% increase over the quarter ended June 30, 1999. Expressed as a percent of net sales, gross profit decreased by 80 basis points to 23.4% for the quarter ended June 30, 2000 compared to 24.2% for the quarter ended June 30, 1999. This decrease was primarily due to unfavorable pricing in the envelope business offset by acquisitions with higher gross profit percentages. Expressed as a percent of net sales, other operating costs (which includes selling, administrative and other expense) increased to 16.4% for the quarter ended June 30, 2000 from 15.4% in the quarter ended June 30, 1999. The increase was mainly due to the impact of acquisitions. Operating income increased 5.2% from the quarter ended June 30, 1999. Net income from continuing operations for the quarter ended June 30, 2000 decreased 27.5% to $10.9 million from $15.0 million in the second quarter of the prior year. This decrease was primarily due to a 70% increase in interest expense, partially offset by reduced income tax expense. Earnings per diluted share from continuing operations decreased 25.0% to $0.21 in the quarter ended June 30, 2000 from $0.28 in 1999. Net sales for the six months ended June 30, 2000 increased 29.0% to $1,134.5 million compared to net sales of $879.5 million for the six months ended June 30, 1999. This increase in net sales was attributable to sales from companies acquired during 2000, a full six months of sales from companies acquired during 1999 and internal growth in Commercial Printing and Label offset by a decline in volume and pricing within the Envelope segment. Gross profit of $267.2 million for the six months ended June 30, 2000 represents a 30.4% increase over the six months ended June 30, 1999. Expressed as a percent of net sales, gross profit increased by 30 basis points to 23.6% for the six months ended June 30, 2000 compared to 23.3% for the six months ended June 30, 1999. This increase was primarily due to acquisitions with higher gross profit percentages offset by pricing in the envelope business expressed as a percent of net sales, other operating costs (which includes selling, administrative and other expense) increased to 15.9% for the six months ended June 30, 2000 from 14.6% in the six months ended June 30, 1999. The increase was mainly due to the impact of acquisitions. Operating income increased 12.9% from the six months ended June 30, 1999. Net income from continuing operations for the six months ended June 30, 2000 decreased 11.1% to $26.5 million from $29.8 million in the six months of the prior year. This decrease was primarily due to a 60% increase in interest expense, partially offset by reduced income tax expense. Earnings per diluted share from continuing operations decreased 8.9% to $0.51 for the six months ended June 30, 2000 from $0.56 in 1999. 23 RESULTS OF OPERATIONS FOR SIGNIFICANT BUSINESS SEGMENTS COMMERCIAL PRINTING ------------------- QUARTER ENDED JUNE 30, 2000 COMPARED TO THE QUARTER ENDED JUNE 30, 1999 NET SALES--Net sales increased by $54.1 million (32.2%) for the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999, primarily due to a volume increase of approximately 15% and the balance due to acquisitions in 1999 and 2000. OPERATING INCOME--The increase in operating income from $13.8 million to $14.9 million in the quarter ended June 30, 2000 was due to acquisitions in 1999 and 2000 as volume impact was offset by changes in product mix. Total cost of sales, as a percent of sales, increased from 77.3% for the quarter ended June 30, 1999 to 78.0% for the quarter ended June 30, 2000. This increase was primarily due to general cost increases, mainly in raw materials, and product mix. SIX-MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX-MONTHS ENDED JUNE 30, 1999 NET SALES--Net sales increased by $91.5 million (25.8%) for the six-months ended June 30, 2000 compared to the six-months ended June 30, 1999, primarily due to a volume increase of approximately 15% and the balance due to acquisitions in 1999 and 2000. OPERATING INCOME--The majority of the increase in operating income from $28.3 million to $32.6 million in the six-months ended June 30, 2000 was due to acquisitions in 1999 and 2000 as volume impact was offset by changes in product mix. Total cost of sales, as a percent of sales was the same (77.7%) for both six-month periods. ENVELOPE -------- QUARTER ENDED JUNE 30, 2000 COMPARED TO THE QUARTER ENDED JUNE 30, 1999 NET SALES--Net sales increased by $32.9 million (18.6%) for the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999. The majority of the increase (14%) in net sales was attributable to sales from a company acquired during 2000 and a full quarter of sales from a company acquired during 1999, with the remainder resulting from management's strategy to grow sales volume by lowering prices to meet competitor's prices. OPERATING INCOME--The decrease in operating income from $22.8 million to $19.6 million in the quarter ended June 30, 2000 versus the quarter ended June 30, 1999 was mostly due to product mix changes and general pricing pressures offset by the impact of 1999 and 2000 acquisitions. Total cost of sales, as a percent of sales, increased from 74.6% for the quarter ended June 30, 1999 to 79.2% for the quarter ended June 30, 2000. The increase was due to product mix changes and pricing pressures. The strategy to grow sales in the second quarter by lowering prices was successful, but resulted in reduced operating margins. Rising paper prices, which could not in some cases be immediately passed on to customers also contributed to reduced operating margins. 24 SIX-MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX-MONTHS ENDED JUNE 30, 1999 NET SALES--Net sales increased by $40.7 million (11.0%) for the six-months ended June 30, 2000 compared to the six-months ended June 30, 1999. The majority of the increase in net sales was attributable to sales from a company acquired during 2000 and a full six months of sales from a company acquired during 1999. Increases in volume for the quarter ended June 30, 2000 were offset by a decrease in volume for the quarter ended March 31, 2000. OPERATING INCOME--The decrease in operating income from $47.3 million to $41.8 million in the six-months ended June 30, 2000 versus the six-months ended June 30, 1999 was due mostly to general pricing pressures and product mix changes. Total cost of sales, as a percent of sales, increased from 75.3% for the six-months ended June 30, 1999 to 78.5% for the six-months ended June 30, 2000. The increase was due to product mix changes and pricing pressures offset by the impact of 1999 and 2000 acquisitions. The strategy to grow sales in the second quarter by lowering prices was successful, but resulted in reduced operating margins. Rising paper prices, which could not in some cases be passed on immediately to customers also contributed to reduced operating margins. PRINTED OFFICE PRODUCTS ----------------------- QUARTER ENDED JUNE 30, 2000 COMPARED TO THE QUARTER ENDED JUNE 30, 1999 NET SALES--Net sales increased by $53.1 million (128.4%) for the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999. This increase in net sales was attributable to sales from a company acquired during 2000 offset by decreases in volume at existing businesses. Increases in specialty label and other specialty products like VersaSeal(R) have been more than offset by decreases in the traditional forms business. OPERATING INCOME--The majority of the increase in operating income from $4.0 million to $9.4 million in the quarter ended June 30, 2000 was due to acquisitions in 1999 and 2000 and a change in product mix. Total cost of sales, as a percent of sales, decreased from 77.9% for the quarter ended June 30, 1999 to 68.0% for the quarter ended June 30, 2000. Total cost of sales, as a percent of sales, was 77.7% for the quarter ended June 30, 2000 excluding acquisitions from 2000. The decrease was due to lower material costs through aggressive management of our main supplier agreement and effects of a new waste reduction program offset by the negative impact of changes in product mix. SIX-MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX-MONTHS ENDED JUNE 30, 1999 NET SALES--Net sales increased by $87.3 million (114.5%) for the six-months ended June 30, 2000 compared to the six-months ended June 30, 1999. This increase in net sales was attributable to sales from a company acquired during 2000 and from companies acquired during 1999 offset by decreases in volume at existing businesses. Increases in specialty label and other specialty products like VersaSeal(R) have been more than offset by decreases in the traditional forms business. OPERATING INCOME--The majority of the increase in operating income from $7.0 million to $17.6 million in the six-months ended June 30, 2000 was due to acquisitions in 1999 and 2000, productivity improvements and a change in product mix. Total cost of sales, as a percent of sales, decreased from 80.2% for the six-months ended June 30, 1999 to 68.7% for the six-months ended June 30, 2000. Total cost of sales, as a percent of sales, was 79.2% for the quarter ended June 30, 2000 excluding acquisitions from 1999 and 2000. The decrease was due to lower material costs through aggressive management of our main supplier agreement and effects of a new waste reduction program offset by the negative impact of changes in product mix. 25 CORPORATE --------- Certain major production equipment is accounted for as an operating lease on a consolidated basis while treated as a purchase on a segment level. The Company classifies the excess of the operating lease expense over depreciation as a corporate expense in analyzing segment operations. The Company does not include the amortization of intangibles recorded in acquisitions in segment results but rather includes it on a corporate basis. In addition, corporate expenses include corporate administrative expense, loss (gain) on disposal of assets and a reduction of cost of sales from certain supplier rebate programs not allocated to segments. Corporate expenses for the quarter and six-months ended June 30, 2000 increased $1.7 million and $2.0 million respectively compared to 1999 as a result of increases in amortization expense and operating lease expense offset by an increase in corporate retained rebates. Amortization expense increased as a result of the acquisitions made in 1999 and 2000. INTEREST EXPENSE ---------------- Interest expense, including accounts receivable securitization discount, increased $9.9 million and $16.1 million, respectively, for the quarter and six-months periods ended ended June 30, 2000 compared to the same periods of 1999. Both increases occurred as a result of higher average bank debt balances, primarily due to acquisitions, and an increase in the weighted-average borrowing rate due to the refinancing of certain bank facilities and a general increase in market interest rates. The Company continued to participate in its accounts receivable securitization agreement whereby it can sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable up to a maximum of $75.0 million until July 2004. At June 30, 2000 and 1999, $140.0 million and $96.0 million, respectively, had been sold under this agreement. The receivables were sold at a discount slightly above the prevailing commercial paper rate, plus certain other fees. INCOME TAX EXPENSE ------------------ The effective tax rate was 36.9% and 39.4% for the quarter and six-months periods ended June 30, 2000, respectively, compared to 41.0% for both periods in 1999. The effective tax rate was higher than the federal statutory rates due to state and provincial income taxes and certain goodwill amortization that is not tax deductible. See Note 9 of the Notes to Consolidated Financial Statements included in the Company's 1999 Form 10-K. LIQUIDITY AND CAPITAL RESOURCES HISTORICAL CASH FLOW -------------------- Net cash flow provided by operating activities was $47.3 million and $74.7 million for the six-months ended June 30, 2000 and 1999, respectively. The decrease in cash flow provided by operating activities is due to the increase in working capital. The largest contributor to the increase in working capital is accounts receivable. Accounts receivable has increased mostly in the Commercial Printing and Label segments because of higher sales in the six months ended June 30, 2000 compared to the prior year. Acquisitions required cash payments of $327.7 million and $162.6 million for the six-months ended June 30, 2000 and 1999, respectively. Other investing activities, excluding investment in marketable securities, were $43.9 million and $39.7 million for the six months ended June 30, 2000 and 1999, respectively. The investment in equity securities of $12.6 million in the six-months ended June 30, 2000 resulted from funding of supplemental retirement benefits of certain employees or former employees of American Business Products, Inc. and an investment in Sprockets.com. Net cash flow from financing activities was $332.7 million and $135.3 million for the six-months ended June 30, 2000 and 1999, respectively. See footnote 3 of the financial statements contained in Item 1 for explanation of the 2000 financing activities. At June 30, 2000, the Company had approximately $194.3 million of available credit under its various credit facilities. 26 FOREIGN CURRENCY ---------------- The Company's foreign currency exposure primarily relates to its Canadian operations. Net sales provided by the Canadian operations for the six-months ended June 30, 2000 and 1999 was USD $104.1 million and USD $95.4 million, respectively. The impact of the change in Canadian Dollar exchange rates was immaterial. SEASONALITY AND ENVIRONMENT --------------------------- As the Company expands its operations into more commercial printing and labels segments, it has become more impacted by seasonality. Management expects the first and third quarter to report higher sales for the Commercial Printing segment because of annual report and car brochure business. In addition, the third quarter is traditionally the strongest for the Label segment. The effects of environmental matters had no material financial impact on the historical operations of the Company and are not expected to have a material effect on the Company's liquidity and capital resources going forward. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the "Statement"), as amended, which will be effective beginning in the year 2001, requires derivative instruments to be recorded in the balance sheet at their fair value with changes in fair value being recognized in earnings unless specific hedging accounting criteria are met. Because of the Company's minimal hedging and derivative activity, management does not anticipate that the adoption of the statement will have a significant impact on its operations and financial position. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks, including foreign currency and interest rate risks. The foreign currency risk for foreign currency denominated debt obligations (USD$18,622,000 at June 30, 2000) and the interest rate risk for the investment in accounts receivable securitization ($61,403,000 at June 30, 2000) are not considered to be significant since the difference between the fair values and carrying values are not material to the company's financial position. The Company's cash flows from operations and earnings are affected by changes in short-term interest rates since a large portion of its credit agreements include rates variable with LIBOR. As of June 30, 2000, $608.8 million of variable rate debt was outstanding. The fair value of the Company's fixed rate long-term debt is affected by changes in long- term interest rates. If LIBOR were to increase 1% from the rate at June 30, 2000 and the Company borrowed the maximum amount available under its variable rate debt ($803.1 million), the Company's annual interest expense would increase by $8.0 million, and annual income after income taxes would decrease by approximately $4.9 million using a marginal income tax rate of 38.5%. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in the Company's financial structure. See Item 7A of the Company's 1999 Form 10-K for quantitative and qualitative disclosures about market risk related to fixed rate long- term debt. No significant changes in market risk have occurred since that filing. 27 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS On May 3, 2000, the Company held its Annual Meeting of Stockholders, at which the following matters were voted upon: ELECTION OF DIRECTORS--The following individuals were re-elected to the Board of Directors by the following vote: For Withhold --- -------- Frank P. Diassi 34,370,468 91,635 Frank J. Hevrdejs 34,370,468 91,635 Gerald F. Mahoney 34,232,121 229,982 Jerome W. Pickholz 34,351,718 110,385 Paul V. Reilly 34,204,157 257,946 William R. Thomas 34,351,718 110,385 Janice C. Peters 34,351,718 110,385 SELECTION OF AUDITORS--The selection of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending 2000 was ratified by the following vote: 34,406,984 For, 49,990 Against, 5,129 Abstentions. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 3(i) Articles of Incorporation of the Company - incorporated by reference from Exhibit 3(i) of the Company's Form 10-Q for the quarter ended September 30, 1997. 3(ii) Bylaws of the Company - incorporated by reference from Exhibit 3.4 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 4.1.1 Form of Certificate representing the Common Stock, par value $0.01 per share, of the Company - incorporated by reference from Exhibit 4.1 of the Company's Amendment No. 1 to Form S-3 dated October 29, 1997 (Reg. No. 333-35561). 4.1.2 Form of Indenture between the Company and The Bank of New York, as Trustee, dated November 1997, relating to the Company's $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002--incorporated by reference from Exhibit 4.2 to the Company's Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333-36337). 4.1.3 Form of Supplemental Indenture between the Company and The Bank of New York, as Trustee, dated November 1997, relating to the Company's $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002 and Form of Convertible Note--incorporated by reference from Exhibit 4.5 to the Company's Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333-36337). 4.2 Indenture dated as of December 16, 1998 between Mail-Well I Corporation ("MWI") and State Street Bank and Trust Company, as Trustee, relating to MWI's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008 - incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 4.5 Form of Senior Subordinated Note. Incorporated by reference from the company's Annual Report of Form 10-K for the year ended December 31, 1998. 10.1 Form of Indemnity Agreement between the Company and each of its officers and directors - incorporated by reference from Exhibit 10.17 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.2 Form of Indemnity Agreement between Mail-Well I Corporation and each of its officers and directors - incorporated by reference from Exhibit 10.18 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 28 10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as of February 23, 1994 and related Employee Stock Ownership Plan Trust Agreement - incorporated by reference from Exhibit 10.19 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.4 Form of M-W Corp. 401(k) Savings Retirement Plan - incorporated by reference from Exhibit 10.20 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.5 Mail-Well, Inc. 1994 Stock Option Plan, as amended on May 7, 1997 - incorporated by reference from Exhibit 10.56 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. 10.6 Form of 1994 Incentive Stock Option Agreement - incorporated by reference from Exhibit 10.22 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.7 Form of the Company Nonqualified Stock Option Agreement - incorporated by reference from Exhibit 10.23 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.8 Mail-Well, Inc. 1997 Non-Qualified Stock Option Plan -- incorporated by reference from exhibit 10.54 of the Company's Form 10-Q for the quarter ended March 31, 1997. 10.9 1997 Non-Qualified Stock Option Agreement -- incorporated by reference from exhibit 10.54 of the Company's Form 10-Q for the quarter ended March 31, 1997. 10.10 Mail-Well, Inc. 1998 Incentive Stock Option Plan -- incorporated by reference from Exhibit 10.58 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.11 Form of 1998 Incentive Stock Option Agreement -- incorporated by reference from Exhibit 10.59 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.12 Credit Agreement dated as of March 16, 1998 among Supremex Inc., certain Guarantors, Bank of America National Trust and Savings Association, as Agent and other financial institutions party thereto -- incorporated by reference from Exhibit 10.61 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.13 Participation Agreement dated as of December 15, 1997 among Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto--incorporated by reference from Exhibit 10.62 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.14 Equipment Lease dated as of December 15, 1997 among Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto--incorporated by reference from Exhibit 10.63 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.15 Guaranty Agreement dated as of December 15, 1997 among Mail-Well, Inc., Graphic Arts Center, Inc., Griffin Envelope Inc., Murray Envelope Corporation, Shepard Poorman Communications Corporation, Wisco Envelope Corp., Wisco II, LLC, Wisco III, LLC, Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto-- incorporated by reference from Exhibit 10.64 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.16 Receivables Purchase Agreement dated as of July 1, 1999 among Mail-Well Trade Receivables Corporation, as Seller, Quincy Capital Corporation, as Issuer, The Alternative Purchasers from Time to Time Party thereto, Mail-Well I Corporation, as Servicer and Bank of America National Trust and Savings Association, as Administrator; and First Amendment thereto--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10.17 Purchase and Sales Agreement between Mail-Well I Corporation as initial Servicer and as Guarantor, The Originators from Time to Time Party thereto and Mail-Well Trade Receivable Corporation, as Purchaser dated as of July 1, 1999; and First Amendment thereto--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10.18 Servicing Agreement dated as of July 1, 1999 by and among Mail-Well I Corporation, as Servicer, Mail-Well Trade Receivables Corporation, as Seller under the Receivables Purchase Agreement and Bank of America National Trust and Saving Association, as Administrator; and First Amendment thereto-- incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. 10.19 Merger Agreement and Plan of Merger by and among American Business Products, Inc., Mail-Well, Inc. and Sherman Acquisition Corporation dated January 13, 2000--incorporated by reference from Exhibit (c) (1) to the Registrant's Tender Offer Statement on Schedule 14D-1 filed with the commission on January 21, 2000. 10.20 Change of Control Agreement dated November 15, 1999, between the Company and Gerald F. Mahoney--incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 29 10.21 Change of Control Agreement dated November 15, 1999, between the Company and Paul V. Reilly--incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 10.22 Change of Control Agreement dated November 15, 1999, between the Company and Gary Ritondaro--incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 10.23 Change of Control Agreement dated November 15, 1999, between the Company and Robert Meyer--incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 10.24 Change of Control Agreement dated November 15, 1999, between the Company and Michael A. Zawalski--incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 10.25 Credit Agreement dated as of February 18, 2000 among Mail-Well I Corporation, Bank of America, N.A., as Administrative Agent and Letter of Credit Issuing Bank, ABN AMRO Bank, N.V., as Syndication Agents, the Bank of Nova Scotia, as Documentation Agent and certain other financial institutions party thereto. 10.26 Security Agreement dated as of February 18, 2000, by and among Mail-Well I Corporation, Mail-Well, Inc., certain other affiliates of the Company and Bank of America, N.A., as agent. 27.1 Financial Data Schedule for three-months ended June 30, 2000 27.2 Financial Data Schedule for three-months ended June 30, 1999 [FN] Filed herewith. (b) Reports on Form 8-K A report on Form 8-K was filed on July 17, 2000, announcing second quarter earnings, letter of intent for sale of Jen-Coat, and stock buy- back program. 30 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. MAIL-WELL, INC. (Registrant) By /s/ Gerald F. Mahoney --------------------------- Date: August 8, 2000 Gerald F. Mahoney Chairman of the Board/ Chief Executive Officer By /s/ Gary H. Ritondaro --------------------------- Date: August 8, 2000 Gary H. Ritondaro Senior Vice President, Chief Financial Officer 31