-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rwugn+B344MpMt9XLHoFKJrcEK1Yhefoa+l/bxeKqNcELfLoU2dEk9x5S8IdmKrg wADBzwaNTxMu9Dmb88ygoA== 0001068800-03-000325.txt : 20030505 0001068800-03-000325.hdr.sgml : 20030505 20030505095245 ACCESSION NUMBER: 0001068800-03-000325 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAIL WELL INC CENTRAL INDEX KEY: 0000920321 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 841250533 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12551 FILM NUMBER: 03681092 BUSINESS ADDRESS: STREET 1: 8310 S VALLEY HWY #400 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037908023 MAIL ADDRESS: STREET 1: 8310 S VALLEY HWY #400 CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: MAIL WELL HOLDINGS INC DATE OF NAME CHANGE: 19940328 10-Q 1 form10q.txt MAIL-WELL, INC. FORM 10-Q ============================================================================= - ----------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003 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 Identification No.) incorporation or organization) 8310 S. VALLEY HIGHWAY, #400 80112 ENGLEWOOD, CO (Address of principal executive offices) (Zip Code)
303-790-8023 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes /X/ No / / The aggregate market value of the voting stock held by non-affiliates of the Registrant as of May 1, 2003 was $62,275,389. As of May 1, 2003 the Registrant had 48,343,060 shares of Common Stock, $0.01 par value, outstanding. - ----------------------------------------------------------------------------- ============================================================================= TABLE OF CONTENTS PART I--FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements........................................ 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................................... 27 Item 4. Controls and Procedures..................................... 27 PART IV Item 6. Exhibits and Reports on Form 8-K............................ 28 i PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAIL-WELL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
MARCH 31, 2003 (UNAUDITED) DECEMBER 31, 2002 -------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents.............................. $ 344 $ 2,650 Accounts receivable, net............................... 227,049 219,924 Inventories, net....................................... 104,546 103,533 Net assets held for sale............................... -- 4,492 Other current assets................................... 48,225 45,762 ---------- ---------- TOTAL CURRENT ASSETS............................... 380,164 376,361 Property, plant and equipment, net......................... 379,677 379,624 Goodwill................................................... 293,436 290,361 Other intangible assets, net............................... 18,142 18,586 Other assets, net.......................................... 38,851 42,435 ---------- ---------- TOTAL ASSETS............................................... $1,110,270 $1,107,367 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable....................................... $ 143,715 $ 151,930 Accrued compensation and related liabilities........... 49,660 53,292 Other current liabilities.............................. 59,979 67,848 Current maturities of long-term debt................... 2,193 2,961 ---------- ---------- TOTAL CURRENT LIABILITIES.......................... 255,547 276,031 Long-term debt............................................. 775,058 760,938 Deferred income taxes...................................... 9,041 10,336 Other liabilities.......................................... 17,175 17,294 ---------- ---------- TOTAL LIABILITIES.......................................... 1,056,821 1,064,599 Commitments and contingencies SHAREHOLDERS' EQUITY: Preferred stock, $0.01 par value; 25,000 shares authorized, none issued.............................. -- -- Common stock, $0.01 par value; 100,000,000 shares authorized, 48,337,031 shares issued and outstanding as of March 31, 2003 and December 31, 2002........... 483 483 Paid-in capital........................................ 213,882 213,826 Retained deficit....................................... (152,338) (155,481) Deferred compensation.................................. (2,377) (2,471) Accumulated other comprehensive loss................... (6,201) (13,589) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY......................... 53,449 42,768 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. $1,110,270 $1,107,367 ========== ========== See notes to condensed consolidated financial statements.
1 MAIL-WELL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except earnings per share amounts)
THREE MONTHS ENDED MARCH 31 --------------------------- 2003 2002 -------- --------- Net sales................................................... $427,319 $ 443,482 Cost of sales............................................... 343,472 355,453 -------- --------- Gross profit................................................ 83,847 88,029 Operating expenses: Selling, general and administrative..................... 63,480 68,191 Amortization of intangibles............................. 445 502 Loss from the early extinguishment of debt.............. -- 7,745 Restructuring and other charges......................... 685 14,527 -------- --------- Operating income (loss)..................................... 19,237 (2,936) Other expense: Interest expense........................................ 17,979 14,905 Other................................................... 131 292 -------- --------- Income (loss) from continuing operations before income taxes and cumulative effect of a change in accounting principle................................................. 1,127 (18,133) Provision (benefit) for income taxes........................ 484 (4,524) -------- --------- Income (loss) from continuing operations before cumulative effect of a change in accounting principle................ 643 (13,609) Loss (gain) on disposal of discontinued operations.......... (2,500) 7,999 Cumulative effect of a change in accounting principle....... -- 111,748 -------- --------- Net income (loss)........................................... $ 3,143 $(133,356) ======== ========= Earnings (loss) per share--basic: Continuing operations................................... $ 0.01 $ (0.29) Discontinued operations................................. 0.06 (0.17) Cumulative effect of a change in accounting principle... -- (2.34) -------- --------- Earnings (loss) per share--basic............................ $ 0.07 $ (2.80) ======== ========= Earnings (loss) per share--diluted: Continuing operations................................... $ 0.01 $ (0.29) Discontinued operations................................. 0.05 (0.17) Cumulative effect of a change in accounting principle... -- (2.34) -------- --------- Earnings (loss) per share--diluted.......................... $ 0.06 $ (2.80) ======== ========= Weighted average shares--basic.............................. 47,668 47,658 Weighted average shares--diluted............................ 48,376 47,658 See notes to condensed consolidated financial statements.
2 MAIL-WELL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
THREE MONTHS ENDED MARCH 31 --------------------------- 2003 2002 --------- --------- Cash flows from operating activities: Income (loss) from continuing operations.................. $ 643 $ (13,609) Adjustments to reconcile income (loss) from continuing operations to net cash provided by (used in) operating activities: Depreciation......................................... 11,190 11,478 Amortization......................................... 1,383 1,967 Noncash portion of restructuring, impairment and other charges....................................... -- 6,724 Deferred income tax benefit.......................... (1,988) (2,195) Loss on disposal of assets........................... 258 254 Other noncash charges, net........................... 1,012 96 Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: Accounts receivable.................................. (5,716) 5,060 Inventories.......................................... (414) 972 Accounts payable and accrued compensation............ (12,668) 1,799 Income taxes payable................................. (2,379) (4,712) Other working capital changes........................ (5,422) (495) Other, net........................................... 661 347 --------- --------- Net cash (used in) provided by operating activities........................................ (13,440) 7,686 Cash flows from investing activities: Acquisitions.......................................... -- (1,003) Capital expenditures.................................. (6,416) (11,340) Proceeds from divestitures, net....................... 3,864 31,623 Proceeds from sales of property, plant and equipment........................................... 515 60 --------- --------- Net cash (used in) provided by investing activities........................................ (2,037) 19,340 Cash flows from financing activities: Proceeds from issuance of long-term debt.............. 485,122 569,000 Repayments of long-term debt.......................... (471,815) (459,360) Capitalized loan fees................................. (316) (12,037) --------- --------- Net cash provided by financing activities........... 12,991 97,603 Effect of exchange rate changes on cash and cash equivalents................................................ 180 (324) Cash flows from discontinued operations..................... -- (4,142) --------- --------- Net (decrease) increase in cash and cash equivalents....................................... (2,306) 120,163 Cash and cash equivalents at beginning of year.............. 2,650 2,014 --------- --------- Cash and cash equivalents at end of period.................. $ 344 $ 122,177 ========= ========= See notes to condensed consolidated financial statements.
3 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Mail-Well, Inc. and subsidiaries (collectively, the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2002. During June 2002, the decision was made to discontinue efforts to sell the PrintXcel business. As such, the consolidated statements of operations and cash flows for the three months ended March 31, 2002 have been restated to include this business as part of the continuing operations. PrintXcel, which is the Company's Printed Office Products operating segment, had previously been reported in discontinued operations. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, on January 1, 2002 and completed its determination of the goodwill impairment of the Commercial Printing segment in the fourth quarter of 2002. The transitional impairment of $111.7 million was recorded as the cumulative effect of a change in accounting principle as of January 1, 2002 and required the restatement of net income in the condensed consolidated statement of operations as of March 31, 2002. The Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, on January 1, 2003. The provisions of SFAS No. 145 required the reclassification of the loss from the early extinguishment of debt that was recorded as an extraordinary item in the first quarter of 2002 into income from continuing operations. The table below is a reconciliation of loss per share as of March 31, 2002 as originally reported and the loss per share as restated.
MARCH 31, 2002 IMPACT OF AS ORIGINALLY IMPACT OF IMPACT OF RECLASSIFICATION OF MARCH 31, 2002 REPORTED SFAS 142 SFAS 145 PRINTXCEL RESTATED -------------- --------- --------- ------------------- -------------- Loss per share--basic and diluted*: Continuing operations...... $(0.17) $ -- $(0.10) $(0.01) $(0.29) Discontinued operations.... (0.18) -- -- 0.01 (0.17) Extraordinary items........ (0.10) -- 0.10 -- -- Cumulative effect of a change in accounting principle................ -- (2.34) -- -- (2.34) ------ ------ ------ ------ ------ Loss per share............. $(0.45) $(2.34) $ -- $ -- $(2.80) ====== ====== ====== ====== ====== - -------- * The following table may not add due to rounding.
4 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. NEW ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 ("Interpretation 46"). Interpretation 46 requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity. Interpretation 46 currently applies to variable interest entities created after January 31, 2003 and to variable interest entities in which a company obtains an interest after that date. Since we had no such interests arising after January 31, 2003, this interpretation has had no impact on our financial condition or results of operations during the three months ended March 31, 2003. Beginning in the third quarter of 2003, we must apply Interpretation 46 to all interests in variable interest entities existing prior to January 31, 2003. We are the lessee in a series of leases covering our leased machinery and equipment. The lessors are financing entities that we do not consolidate. These leases do not contain a fixed-price purchase option and we generally are not at risk for losses. We currently believe that it is unlikely that we will be required to consolidate the underlying entities upon application of the interpretation. 3. STOCK-BASED COMPENSATION Stock options and other stock-based compensation awards are accounted for using the intrinsic value method prescribed by Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees. This method requires compensation expense to be recognized for the excess of the quoted market price of the stock at the grant date or the measurement date over the amount an employee must pay to acquire the stock. The following table illustrates the pro forma effect of net income (loss) and earnings (loss) per share if we had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for the periods ended March 31, 2003 and 2002 (in thousands, except per share data):
MARCH 31 ------------------------- 2003 2002 --------- --------- Net income (loss): As reported....................................... $ 3,143 $(133,356) Pro forma......................................... $ 2,588 $(134,267) Earnings (loss) per share--basic: As reported....................................... $ 0.07 $ (2.80) Pro forma......................................... $ 0.05 $ (2.82) Earnings (loss) per share--diluted: As reported....................................... $ 0.06 $ (2.80) Pro forma......................................... $ 0.05 $ (2.82)
The effect on pro forma net income (loss), earnings (loss) per share--basic and earnings (loss) per share--diluted of expensing the estimated fair value of stock options is not necessarily representative of the effect on reported earnings for future years due to the vesting period of the stock options and the potential for issuance of additional stock options in future years. 5 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. ACQUISITION In August 2002, the Company acquired the in-house printing and fulfillment operations of American Express Company, located in Minneapolis, Minnesota, for $1.3 million. This acquisition has been accounted for as a purchase; accordingly, its assets and liabilities have been recorded at estimated fair value with the excess of the purchase price over the estimated fair value recorded as goodwill. The consolidated financial statements reflect the operations of the acquired business since August 2002. Goodwill recorded as a result of this acquisition was $0.8 million. Additional consideration may be paid which is contingent based on annual revenues during each year of the five year period commencing on January 1, 2003. This may result in an additional consideration of up to $17.5 million. Sales included in the period ended March 31, 2003 were $9.2 million. 5. ASSETS HELD FOR SALE The Company sold the filing products division of the Envelope segment in August 2002 and certain digital graphics operations of the Commercial Printing segment in March 2003. The following table presents the sales and operating income of these operations included in the condensed consolidated statements of operations for the three months ended March 31, 2003 and 2002 (in thousands):
MARCH 31 -------------------- 2003 2002 ------ ------- Sales.................................................. $2,872 $22,064 Operating income....................................... $ 167 $ 2,223
6. SUPPLEMENTAL BALANCE SHEET INFORMATION INVENTORIES The Company's inventories by major category are as follows (in thousands):
MARCH 31, DECEMBER 31, 2003 2002 --------- ------------ Raw materials.......................................... $ 30,870 $ 32,515 Work in process........................................ 23,726 25,832 Finished goods......................................... 55,941 50,854 -------- -------- 110,537 109,201 Reserves............................................... (5,991) (5,668) -------- -------- $104,546 $103,533 ======== ========
6 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. SUPPLEMENTAL BALANCE SHEET INFORMATION (CONTINUED) PROPERTY, PLANT AND EQUIPMENT The Company's investment in property, plant and equipment consists of the following (in thousands):
MARCH 31, DECEMBER 31, 2003 2002 --------- ------------ Land and land improvements............................. $ 20,028 $ 19,529 Buildings and improvements............................. 108,380 105,646 Machinery and equipment................................ 467,274 463,896 Furniture and fixtures................................. 15,357 15,178 Construction in progress............................... 7,787 5,510 --------- --------- 618,826 609,759 Accumulated depreciation............................... (239,149) (230,135) --------- --------- $ 379,677 $ 379,624 ========= =========
COMPREHENSIVE INCOME (LOSS) A summary of the comprehensive income (loss) is as follows (in thousands):
THREE MONTHS ENDED ------------------------- MARCH 31, MARCH 31, 2003 2002 --------- --------- Net income (loss)...................................... $ 3,143 $(133,356) Other comprehensive income (loss): Currency translation adjustment, net................... 7,388 (1,348) ------- --------- Comprehensive income (loss)............................ $10,531 $(134,704) ======= =========
7. LONG-TERM DEBT At March 31, 2003 and December 31, 2002, long-term debt consisted of the following (in thousands):
MARCH 31, DECEMBER 31, 2003 2002 --------- ------------ Senior Secured Credit Facility, due 2005............... $116,236 $101,932 Senior Notes, due 2012................................. 350,000 350,000 Senior Subordinated Notes, due 2008.................... 300,000 300,000 Other.................................................. 11,051 11,967 -------- -------- 777,257 763,899 Less current maturities................................ (2,193) (2,961) -------- -------- Long-term debt...................................... $775,058 $760,938 ======== ========
In March 2002, the Company wrote off deferred financing costs of $7.7 million in connection with the early payment of a portion of the term loans of the bank credit facility in effect at that date. This write-off was reported as a loss from the early extinguishment of debt in the condensed consolidated statement of operations for the three months ended March 31, 2002 as discussed in Note 1. The Senior Notes and the Senior Subordinated Notes are guaranteed by Mail-Well, Inc. and its U.S. subsidiaries (the "Guarantor Subsidiaries") all of which are wholly owned. The guarantees are 7 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. LONG-TERM DEBT (CONTINUED) joint and several, full, complete and unconditional. There are no material restrictions on the ability of the Guarantor Subsidiaries to transfer funds to the issuing subsidiary in the form of cash dividends, loans or advances, other than ordinary legal restrictions under corporate law, fraudulent transfer and bankruptcy laws. As of March 31, 2003, the Company was in compliance with all of the covenants of its various debt agreements. 8. RESTRUCTURING AND OTHER CHARGES The Company has substantially completed the restructuring programs initiated in June 2001 which continued during 2002. Restructuring recorded during the three-month period ended March 31, 2003 was $0.7 million all of which related to restructuring programs initiated prior to 2003. The following table and discussion present the details of these charges (in thousands):
PRINTED COMMERCIAL OFFICE PRINTING PRODUCTS TOTAL ---------- -------- ----- Employee separation and related employee expenses........... $ 43 $(140) $(97) Equipment moves............................................. 690 -- 690 Other exit costs............................................ 92 -- 92 ---- ----- ---- Total................................................... $825 $(140) $685 ==== ===== ====
COMMERCIAL PRINTING. In the fourth quarter of 2002, Commercial Printing announced the closure of its web printing operation in Indianapolis, Indiana and the redeployment of the two web presses and related equipment in St. Louis, Missouri and Baltimore, Maryland. A substantial portion of the cost to dismantle, move and reinstall this equipment was incurred in the first quarter of 2003. The other charges also relate to plans initiated in the fourth quarter of 2002 to right size our printing plants in the Northwest. PRINTED OFFICE PRODUCTS. In the fourth quarter of 2002, Printed Office Products closed its business forms plant in Clearwater, Florida and consolidated its production in its Fairhope, Alabama plant. The employee separation and related employee expenses paid as a result of this consolidation were less than originally estimated. A summary of the activity charged to the 2002 restructuring liability during the three months ended March 31, 2003 is as follows (in thousands):
PRINTED COMMERCIAL OFFICE PRINTING PRODUCTS TOTAL ---------- -------- ------- Balance, December 31, 2002.......................... $3,990 $ 653 $ 4,643 Payments for severance.......................... (122) (289) (411) Payments for lease termination and property exit costs......................................... (987) (48) (1,035) Payments for other exit costs................... (72) (256) (328) Reversal of unused portion...................... -- 140 140 ------ ----- ------- Balance, March 31, 2003............................. $2,809 $ 200 $ 3,009 ====== ===== =======
8 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. RESTRUCTURING AND OTHER CHARGES (CONTINUED) A summary of the activity charged to the 2001 restructuring liability during the three months ended March 31, 2003 is as follows (in thousands):
COMMERCIAL ENVELOPE PRINTING TOTAL -------- ---------- ------ Balance, December 31, 2002............................ $2,518 $ 449 $2,967 Payments for severance............................ (233) -- (233) Payments for lease termination and property exit costs........................................... (379) (307) (686) ------ ----- ------ Balance, March 31, 2003............................... $1,906 $ 142 $2,048 ====== ===== ======
9. DISCONTINUED OPERATIONS During the first quarter of 2003, we recorded a gain on the disposal of discontinued operations in the amount of $2.5 million. This gain was the result of a change in the estimated tax impact of the disposition of our prime label business, which was sold in May 2002. The data required to determine the full tax impact of this transaction was not available until 2003. The Company will finalize this estimate upon filing the final tax return in the third quarter. 10. EARNINGS PER SHARE Basic earnings per share exclude dilution and are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation of the amounts included in the computation of basic earnings (loss) per share and diluted earnings (loss) per share is as follows (in thousands, except per share amounts):
MARCH 31 ---------------------- 2003 2002 ------- -------- Numerator: Numerator for basic and diluted earnings (loss) per share--income (loss) from continuing operations........... $ 643 $(13,609) ======= ======== Denominator: Denominator for basic earnings (loss) per share--weighted average shares............................................ 47,668 47,658 Effects of dilutive securities: Stock options and restricted stock...................... 708 -- ------- -------- Denominator for diluted earnings (loss) per share--adjusted weighted average shares and assumed conversions........... 48,376 47,658 ======= ======== Earnings (loss) for continuing operations per share: Basic and diluted....................................... $ 0.01 $ (0.29) ======= ========
During the period ended March 31, 2002, interest, net of tax, on Convertible Notes in the amount of $1.2 million and shares of 7,319,000 that would be issued upon assumed conversion of these Convertible Notes were excluded from the calculation of diluted loss per share due to the antidilutive effect on loss per share. In 2003 and 2002, outstanding options to purchase 5,403,000 and 6,995,000 common shares, respectively, were excluded from the calculation of diluted earnings per share because the effect would be antidilutive. In addition, 669,000 restricted stock were excluded from the calculation of diluted earnings per share in 2002 because the effect would be antidilutive. 9 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. SEGMENT INFORMATION The Company operates in three principal operating segments. The Commercial Printing segment specializes in printing annual reports, car brochures, brand marketing collateral, catalogs, maps, calendars and financial communications. The Envelope segment manufactures customized and stock envelopes for billing and remittance and direct mail advertising. The Envelope segment is also a producer of specialty packaging products and a manufacturer of stock products for the resale market. The Printed Office Products segment produces customized and stock labels, mailers, and printed business documents which are sold to small and mid-size businesses generally through distributors of office products. Intercompany sales for the three-month periods ended March 31, 2003 and 2002 were $3.1 million and $6.8 million, respectively. These amounts are eliminated in consolidation and excluded from reported net sales. The following tables present certain business segment information for the three months ended March 31, 2003 and 2002 (in thousands):
THREE MONTHS ENDED MARCH 31 ----------------------- 2003 2002 -------- -------- Net sales: Envelope............................................ $179,071 $200,975 Commercial Printing................................. 197,948 190,754 Printed Office Products............................. 50,300 51,753 -------- -------- Total............................................... $427,319 $443,482 ======== ======== Operating income (loss)(a): Envelope............................................ $ 17,862 $ 7,412 Commercial Printing................................. 1,761 (3,901) Printed Office Products............................. 3,790 3,561 Corporate........................................... (4,176) (10,008) -------- -------- Total............................................... $ 19,237 $ (2,936) ======== ======== Restructuring, asset impairments and other charges: Envelope............................................ $ -- $ 12,013 Commercial Printing................................. 825 1,007 Printed Office Products............................. (140) 880 Corporate........................................... -- 8,372 -------- -------- Total............................................... $ 685 $ 22,272 ======== ======== - -------- (a) Operating income (loss) is net of all costs and expenses directly related to the segment involved. Corporate expenses include corporate general and administrative expenses, lease expense and other miscellaneous expenses. Corporate expenses in 2002 include the loss from the early extinguishment of debt.
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION In March 2002, Mail-Well I Corporation ("Issuer" or "MWI"), the Company's wholly-owned subsidiary, and the only direct subsidiary of the Company, issued $350 million aggregate principal amount of 9 5/8% Senior Notes ("Senior Notes") due in 2012. The Senior Notes are guaranteed by all 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. 10 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) In December 1998, MWI issued $300 million aggregate principal amount of 8 3/4% Senior Subordinated Notes ("Senior Subordinated Notes") due in 2008. The Senior Subordinated Notes are guaranteed by Guarantor Subsidiaries and by the 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, and Guarantor Subsidiaries. The Issuer and the Guarantor Subsidiaries comprise all of the direct and indirect subsidiaries of the Parent Guarantor. Curtis 1000 Inc. was, until it was divested in the first quarter of 2002, a subsidiary of the Issuer and a guarantor of the Senior Subordinated Notes. Curtis 1000 Inc. was not at any time a guarantor of the Senior Notes. In order to provide a coherent presentation in the following condensed consolidating financial information, Curtis 1000 Inc.'s financial information is included in the guarantor information for all periods prior to its divestiture in February 2002. 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 remove the equity method investment in subsidiaries and the equity in earnings of subsidiaries, intercompany payables and receivables and other transactions between subsidiaries. 11 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED) March 31, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- ---------- ------------ --------- ------------ Current assets: Cash and cash equivalents.......... $ -- $ (471) $ 815 $ -- $ 344 Accounts receivable, net........... -- 49,524 177,525 -- 227,049 Inventories, net................... -- 44,232 60,314 -- 104,546 Other current assets............... -- 32,531 15,694 -- 48,225 ------- ---------- -------- --------- ---------- Total current assets............. -- 125,816 254,348 -- 380,164 Investment in subsidiaries........... 53,449 228,324 -- (281,773) -- Property, plant and equipment, net... -- 101,632 278,045 -- 379,677 Goodwill and other intangible assets, net................................. -- 84,876 226,702 -- 311,578 Note receivable from subsidiaries.... -- 603,100 -- (603,100) -- Other assets, net.................... -- 7,482 31,369 -- 38,851 ------- ---------- -------- --------- ---------- Total assets......................... $53,449 $1,151,230 $790,464 $(884,873) $1,110,270 ======= ========== ======== ========= ========== Current liabilities: Accounts payable................... $ -- $ 31,263 $112,452 $ -- $ 143,715 Other current liabilities.......... -- 55,919 53,720 -- 109,639 Intercompany payable (receivable)...................... -- 230,258 (230,258) -- -- Current portion of long-term debt.............................. -- 393 1,800 -- 2,193 ------- ---------- -------- --------- ---------- Total current liabilities........ -- 317,833 (62,286) -- 255,547 Long-term debt....................... -- 769,219 5,839 -- 775,058 Note payable to Issuer............... -- -- 603,100 (603,100) -- Deferred income tax (asset) liability........................... -- (2,613) 11,654 -- 9,041 Other long-term liabilities.......... -- 13,342 3,833 -- 17,175 ------- ---------- -------- --------- ---------- Total liabilities................ -- 1,097,781 562,140 (603,100) 1,056,821 Shareholders' equity................. 53,449 53,449 228,324 (281,773) 53,449 ------- ---------- -------- --------- ---------- Total liabilities and shareholders' equity.............................. $53,449 $1,151,230 $790,464 $(884,873) $1,110,270 ======= ========== ======== ========= ==========
12 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION December 31, 2002 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- ---------- ------------ ----------- ------------ Current assets: Cash and cash equivalents......... $ -- $ 1,957 $ 693 $ -- $ 2,650 Accounts receivable, net.......... -- 54,274 165,650 -- 219,924 Inventories, net.................. -- 42,805 60,728 -- 103,533 Net assets held for sale.......... -- -- 4,492 -- 4,492 Other current assets.............. -- 32,462 13,300 -- 45,762 ------- ---------- --------- ----------- ---------- Total current assets............ -- 131,498 244,863 -- 376,361 Investment in subsidiaries.......... 42,768 417,049 -- (459,817) -- Property, plant and equipment, net................................ -- 119,737 259,887 -- 379,624 Goodwill and other intangible assets, net........................ -- 85,097 223,850 -- 308,947 Note receivable from subsidiaries... -- 603,100 -- (603,100) -- Other assets, net................... -- 34,030 8,405 -- 42,435 ------- ---------- --------- ----------- ---------- Total assets........................ $42,768 $1,390,511 $ 737,005 $(1,062,917) $1,107,367 ======= ========== ========= =========== ========== Current liabilities: Accounts payable.................. $ -- $ 41,057 $ 110,873 $ -- $ 151,930 Other current liabilities......... -- 68,128 53,012 -- 121,140 Intercompany payable (receivable)..................... -- 507,381 (507,381) -- -- Current portion of long-term debt............................. -- 970 1,991 -- 2,961 ------- ---------- --------- ----------- ---------- Total current liabilities....... -- 617,536 (341,505) -- 276,031 Long-term debt...................... -- 754,983 5,955 -- 760,938 Note payable to Issuer.............. -- -- 603,100 (603,100) -- Deferred income tax liabilities (assets)........................... -- (38,269) 48,605 -- 10,336 Other long-term liabilities......... -- 13,493 3,801 -- 17,294 ------- ---------- --------- ----------- ---------- Total liabilities............... -- 1,347,743 319,956 (603,100) 1,064,599 Shareholders' equity................ 42,768 42,768 417,049 (459,817) 42,768 ------- ---------- --------- ----------- ---------- Total liabilities and shareholders' equity............................. $42,768 $1,390,511 $ 737,005 $(1,062,917) $1,107,367 ======= ========== ========= =========== ==========
13 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Quarter Ended March 31, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ -------- ------------ Net sales............................... $ -- $107,643 $319,676 $ -- $427,319 Cost of sales........................... -- 88,797 254,675 -- 343,472 ------ -------- -------- -------- -------- Gross profit............................ -- 18,846 65,001 -- 83,847 Other operating expenses................ -- 15,713 48,212 -- 63,925 Restructuring and other charges......... -- -- 685 -- 685 ------ -------- -------- -------- -------- Operating income (loss)................. -- 3,133 16,104 -- 19,237 Other expense (income): Interest expense...................... -- 17,852 13,781 (13,654) 17,979 Other expense (income)................ -- (13,657) 134 13,654 131 ------ -------- -------- -------- -------- Income (loss) from continuing operations before income taxes and equity in undistributed earnings of subsidiaries........................... -- (1,062) 2,189 -- 1,127 Income tax benefit...................... -- (457) 941 -- 484 ------ -------- -------- -------- -------- Income (loss) from continuing operations before equity in undistributed earnings of subsidiaries........................ -- (605) 1,248 -- 643 Equity in undistributed earnings of subsidiaries........................... 3,143 1,248 -- (4,391) -- ------ -------- -------- -------- -------- Income (loss) from continuing operations............................. 3,143 643 1,248 (4,391) 643 Gain on disposal........................ -- (2,500) -- -- (2,500) ------ -------- -------- -------- -------- Net income (loss)....................... $3,143 $ 3,143 $ 1,248 $ (4,391) $ 3,143 ====== ======== ======== ======== ========
14 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Quarter Ended March 31, 2002 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- --------- ------------ -------- ------------ Net sales............................. $ -- $ 140,874 $ 302,608 $ -- $ 443,482 Cost of sales......................... -- 113,495 241,958 -- 355,453 --------- --------- --------- -------- --------- Gross profit.......................... -- 27,379 60,650 -- 88,029 Operating expenses: Selling, administrative and other... 5 19,526 49,162 -- 68,693 Restructuring, asset impairments and other charges...................... -- 21,159 1,113 -- 22,272 --------- --------- --------- -------- --------- Operating income (loss)............... (5) (13,306) 10,375 -- (2,936) Other (income) expense: Interest expense.................... 1,738 17,662 14,222 (18,717) 14,905 Other expense (income).............. (1,977) (16,486) 38 18,717 292 --------- --------- --------- -------- --------- Income (loss) from continuing operations, before income taxes and undistributed earnings of subsidiaries......................... 234 (14,482) (3,885) -- (18,133) Provision (benefit) for income taxes................................ -- (5,672) 1,148 -- (4,524) --------- --------- --------- -------- --------- Income (loss) from continuing operations, before cumulative effect of a change in accounting principle and undistributed earnings of subsidiaries......................... 234 (8,810) (5,033) -- (13,609) Equity in undistributed earnings of subsidiaries......................... (133,590) (124,780) -- 258,370 -- --------- --------- --------- -------- --------- Income from continuing operations before cumulative effect of a change in accounting principle.............. (133,356) (133,590) (5,033) 258,370 (13,609) Loss from discontinued operations..... -- -- 7,999 -- 7,999 Cumulative effect of a change in accounting principle................. -- -- 111,748 -- 111,748 --------- --------- --------- -------- --------- Net income (loss)..................... $(133,356) $(133,590) $(124,780) $258,370 $(133,356) ========= ========= ========= ======== =========
15 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) Quarter Ended March 31, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED --------- --------- ------------ ------------ Cash flows from (used in) operating activities..................................... $ -- $ 1,760 $(15,200) $ (13,440) Cash flows from investing activities: Capital expenditures.......................... -- (809) (5,607) (6,416) Proceeds from divestitures, net............... -- 3,864 -- 3,864 Intercompany advances......................... -- (20,902) 20,902 -- Proceeds from the sale of assets.............. -- -- 515 515 --------- --------- -------- --------- Net cash provided by (used in) investing activities................................... -- (17,847) 15,810 (2,037) Cash flows from financing activities: Proceeds from long-term debt.................. -- 485,122 -- 485,122 Repayments of long-term debt.................. -- (471,147) (668) (471,815) Capitalized loan fees......................... -- (316) -- (316) --------- --------- -------- --------- Net cash provided by (used in) financing activities................................... -- 13,659 (668) 12,991 Effect of exchange rate changes on cash......... -- -- 180 180 --------- --------- -------- --------- Net change in cash and cash equivalents......... -- (2,428) 122 (2,306) Balance at beginning of year.................... -- 1,957 693 2,650 --------- --------- -------- --------- Balance at end of year.......................... $ -- $ (471) $ 815 $ 344 ========= ========= ======== =========
16 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) Quarter Ended March 31, 2002 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- --------- ------------ -------- ------------ Cash flows from operating activities... $ 2,309 $ (4,658) $ 5,194 $ 4,841 $ 7,686 Cash flows from investing activities: Acquisition costs, net of cash acquired............................ -- (1,003) -- -- (1,003) Capital expenditures................. -- (392) (10,948) -- (11,340) Proceeds from divestitures, net...... -- 31,623 -- -- 31,623 Investment in subsidiaries........... (2,309) -- -- 2,309 -- Proceeds from sale of property, plant & equipment......................... -- 34 26 -- 60 ------- --------- -------- -------- --------- Net cash provided by (used in) investing activities................ (2,309) 30,262 (10,922) 2,309 19,340 Cash flows from financing activities: Proceeds from issuance of long-term debt................................ -- 569,000 -- -- 569,000 Repayments of long-term debt......... -- (444,615) (99,784) 85,039 (459,360) Capitalized loan fees................ -- (12,037) -- -- (12,037) Intercompany activity................ -- -- 92,189 (92,189) -- ------- --------- -------- -------- --------- Net cash provided by (used in) financing activities................ -- 112,348 (7,595) (7,150) 97,603 Effect of exchange rate changes on cash and cash equivalents.................. -- -- (324) -- (324) Cash flows from discontinued operations............................ -- -- (4,142) -- (4,142) ------- --------- -------- -------- --------- Net increase (decrease) in cash and cash equivalents...................... -- 137,952 (17,789) -- 120,163 Cash and cash equivalents at beginning of year............................... -- (18,004) 20,018 -- 2,014 ------- --------- -------- -------- --------- Cash and cash equivalents at end of year.................................. $ -- $ 119,948 $ 2,229 $ -- $ 122,177 ======= ========= ======== ======== =========
17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CORPORATE OVERVIEW We are one of North America's largest printing companies. Our mission is to produce products and provide services that help our customers deliver their messages more effectively. We are one company organized into three business segments: * Envelopes * Commercial Printing * Printed Office Products We believe we are the world's largest manufacturer of envelopes. We produce approximately 38 billion envelopes annually in our 39 envelope manufacturing facilities located throughout the United States and Canada. Approximately 84% of these envelopes are customized specifically for our customers for use in billing and remittance, direct mail advertising and specialty packaging. The remaining 16% are stock envelopes sold into the resale market. We are one of the largest commercial printers in the United States. We operate 35 printing plants located strategically throughout the United States and one in Canada. We specialize in high impact printing, in which we print a wide range of premium printed products for national and regional customers, including annual reports, car brochures and brand marketing collateral, and general commercial printing for local and regional customers. We are also a leading domestic supplier of customized and stock labels, mailers and printed business documents to small and mid-size businesses generally through independent distributors of office products. Our printed office products business operates 11 manufacturing plants strategically located throughout the United States. During 2002, we substantially completed an 18-month restructuring of Mail-Well that began in June 2001. This restructuring included the following: * The consolidation of our best envelope equipment, expertise and operational capabilities into 39 facilities, down from 50 in 2000. * The consolidation of our printing operations in the Philadelphia market into one facility, the closure of our operation in New York City, and the consolidation of our web printing plant in Indianapolis, Indiana into our web printing plants in St. Louis, Missouri and Baltimore, Maryland. * The consolidation of the Denver, Colorado and Clearwater, Florida manufacturing facilities of our Printed Office Products segment. * The sale of Curtis 1000, our prime label business and the filing products division of our Envelope segment. * The restructuring of our debt. In March 2003, we sold certain of our digital graphics operations completing all of our planned divestitures. Paper is our most significant raw material. We purchase approximately 500,000 tons of paper annually for our businesses. Prices of uncoated papers, which are the principal grades of paper used to manufacture envelopes, increased 10% in the fourth quarter of 2002. Prices of coated papers, which are used principally in commercial printing, remained flat in 2002. Historically, changes in paper pricing generally have not affected the operating results of our commercial printing segment because we have been able to pass on paper price increases to our customers. Paper pricing has, however, impacted the operating margins of our envelope business. When paper prices are rising, operating margins on our envelope products tend to be lower because we generally are not able to increase our prices as quickly 18 as paper prices increase. We are experiencing this in 2003 as we have been unable to increase the prices of our envelope products sufficiently to cover the higher cost of uncoated papers. CONSOLIDATED RESULTS OF OPERATIONS In August 2002, the Company acquired the in-house printing and fullfillment operations of American Express Company. The acquisition has been accounted for as a purchase transaction, which impacts comparability of our financial statements because the results of the acquired operations are included in the consolidated results from the date acquired. Where appropriate, we have noted the impact of this acquisition in the following discussions of our results. The general economic softness during the first quarter of 2003 affected the sales and margins of our businesses. The demand for print advertising and direct mail promotions remained depressed and the market for traditional business forms continued to decline. We do not expect significant increases in sales and margins until the markets we serve, especially advertising and direct mail, recover. In the meantime, we will continue to control our costs and balance production with the needs of our customers. The tables and discussions of sales and operating income that follow present reported amounts as well as "ongoing" amounts. Ongoing sales exclude sales of the filing products division of our Envelope segment that was sold in August 2002 and the sales of certain digital graphics operations of our Commercial Printing segment that were held for sale at December 2002 and sold in March 2003. Ongoing operating income excludes the operating income of the operations sold and restructuring and other charges incurred in 2002 and during the first quarter of 2003. Since our planned dispositions are now complete and we have substantially completed our restructuring programs, we believe that this analysis provides the most meaningful basis for an understanding of our results during the first quarter of 2003. NET SALES
QUARTER ENDED MARCH 31 ----------------------- 2003 2002 -------- -------- (IN THOUSANDS) Ongoing..................................................... $424,447 $421,418 Filing Products division............................... -- 18,527 Digital Graphics operations............................ 2,872 3,537 -------- -------- Reported.................................................... $427,319 $443,482 ======== ========
Our reported sales during the first quarter of 2003 were $16.2 million, or 4%, lower than during the first quarter of 2002. Excluding the sales of the filing products division of Envelope sold in August 2002 and the digital graphics operations that were sold in March 2003, sales of our ongoing operations were up $3.0 million, or 1%. Significant factors influencing the ongoing sales of our business segments during the first quarter of 2003 were as follows: * Envelope sales were down $3.4 million primarily due to lower sales of higher value added direct mail envelopes. We believe that the uncertainty leading up to the war in Iraq had an impact on our sales of direct mail envelopes. * Commercial Printing's sales increased $7.9 million due to the acquisition in August 2002, which contributed sales of $9.2 million. Excluding these sales, Commercial Printing's sales to its local customers were down $1.3 million primarily due to the closure of its printing facility in New York City. * Commercial Printing's sales to its national and regional customers were down only slightly. * Sales of Printed Office Products decreased $1.5 million primarily due to lower sales of business forms, especially continuous forms and mailers. 19 RESTRUCTURING EXPENSES As mentioned earlier, we have substantially completed the restructuring programs initiated in June 2001 which continued during 2002. While we currently have no further restructuring programs planned, we will respond to the impact of the economic environment on our businesses by continuing to evaluate our operations for improvement opportunities. Restructuring expenses incurred during the first quarter of 2003 were $0.7 million, all of which related to restructuring programs initiated prior to 2003.
PRINTED COMMERCIAL OFFICE PRINTING PRODUCTS TOTAL ---------- -------- ----- (IN THOUSANDS) Employee separation and related employee expenses........... $ 43 $(140) $(97) Equipment moves............................................. 690 -- 690 Other exit costs............................................ 92 -- 92 ---- ----- ---- Total................................................... $825 $(140) $685 ==== ===== ====
COMMERCIAL PRINTING. In the fourth quarter of 2002, Commercial Printing announced the closure of its web printing operation in Indianapolis and the redeployment of the two web presses and related equipment in St. Louis and Baltimore. A substantial portion of the cost to dismantle, move and reinstall this equipment was incurred in the first quarter of 2003. We anticipate additional charges in the second quarter as these moves are completed. The other charges also relate to plans initiated in the fourth quarter of 2002 to right size our printing plants in the Northwest. PRINTED OFFICE PRODUCTS. In the fourth quarter of 2002, Printed Office Products closed its business forms plant in Clearwater and consolidated its production in its Fairhope, Alabama plant. The employee separation and related employee expenses paid as a result of this consolidation were less than originally estimated. OPERATING INCOME (LOSS)
QUARTER ENDED MARCH 31 ---------------------- 2003 2002 ------- -------- (IN THOUSANDS) Ongoing..................................................... $19,755 $ 17,113 Results of operations sold.............................. 167 2,223 Restructuring and other charges......................... (685) (22,272) ------- -------- Reported.................................................... $19,237 $ (2,936) ======= ========
Excluding the charges related to our restructuring and the operating income of the filing products division and digital graphics operations that have been sold, the operating income of our ongoing operations increased $2.6 million in the first quarter of 2003 compared to the first quarter of 2002. * Despite lower sales in the Envelope segment, ongoing operating income was only slightly below the first quarter of 2002. Improvements in productivity and lower administrative expenses offset much of the impact of lower sales. * Commercial Printing's ongoing operating income improved $5.3 million from the first quarter of 2002. The improvement was attributed to the acquisition completed in August 2002 and improvements that are the result of the restructuring actions taken during the second half of 2002. * The ongoing operating income of Printed Office Products was $0.8 million lower than the first quarter of 2002. The decline reflects lower sales partially offset by savings from the plant consolidations during 2002. 20 * Costs associated with corporate services increased $1.7 million over the first quarter of 2002. Approximately $0.4 million of this increase was associated with important employee training to implement a new initiative to actively involve all of our employees in improving service, quality, efficiency and innovation. We expect these initiatives to improve results in the future. INTEREST EXPENSE
QUARTER ENDED MARCH 31 ----------------------- 2003 2002 ------- ------- (IN THOUSANDS) Total interest expense...................................... $17,979 $18,482 Less: Allocated to discontinued operations.................. -- (3,577) ------- ------- Reported interest expense................................... $17,979 $14,905 ======= =======
Interest expense incurred during the first quarter of 2003 reflects our average outstanding debt during the quarter of $794.9 million and a weighted average interest rate of 8.42% compared to the average outstanding debt of $946.8 during the first quarter of 2002 and a weighted average interest rate of 6.89%. The increase in the weighted average interest rate was due to the issuance of $350 million of 9 5/8% senior notes on March 13, 2002 the proceeds of which were used primarily to repay bank debt that accrued interest at a lower variable rate. Also, in November 2002, our 5% convertible subordinated notes were redeemed. Reported interest expense in the first quarter of 2003 was higher than in the first quarter of 2002 due primarily to the higher weighted average interest rate in 2003 and the allocation of interest expense to discontinued operations in 2002. The amount of interest expense allocated to discontinued operations exceeded the actual reduction in interest expense attributable to the divestitures of the discontinued operations. In 2002, a portion of our interest expense was allocated to discontinued operations based on the net assets of the discontinued operations relative to the net asset of the Company as required by generally accepted accounting principles. The net asset amounts used to allocate interest expense exceeded the actual net proceeds received from the dispositions of the discontinued operations. INCOME TAXES
QUARTER ENDED MARCH 31 ------------------ 2003 2002 ---- ------- (IN THOUSANDS) Provision (benefit) for income taxes........................ $484 $(4,524) Effective tax rate.......................................... 43% 25%
The effective tax rate for 2003 is estimated to be 43%. The effective tax rate for 2002 was lower than 2003 by eighteen percentage points. This difference is primarily due to lower estimated pre-tax income in 2002 that increased the impact of nondeductible permanent differences on the overall effective rate. INCOME (LOSS) FROM CONTINUING OPERATIONS AND INCOME (LOSS) PER SHARE--DILUTED
QUARTER ENDED MARCH 31 -------------------- 2003 2002 ----- -------- (IN THOUSANDS) Income (loss) from continuing operations.................... $ 643 $(13,609) Income (loss) from continuing operations per share.......... $0.01 $ (0.29)
Income from continuing operations increased $14.3 million in the first quarter of 2003 compared to the first quarter of 2002. This improvement is due to the acquisition completed in August 2002, 21 improved operating performance, lower overhead, and significantly lower restructuring and other charges. Interest and taxes were higher in the first quarter of 2003 than in 2002. In addition, results in the first quarter of 2002 included a $7.7 million loss on the early extinguishment of debt. This loss, which had been reported as an extraordinary item in 2002, was reclassified as a loss from continuing operations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. LOSS (GAIN) ON DISPOSAL OF DISCONTINUED OPERATIONS During the first quarter of 2003, we recorded a gain on the disposal of discontinued operations in the amount of $2.5 million. This gain was the result of an adjustment made to the tax impact of the disposition of our prime label business, which was sold in May 2002. The data required to determine the full tax impact of this transaction was not available until 2003. The Company will finalize this estimate upon filing the final tax return. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE--DILUTED
QUARTER ENDED MARCH 31 ---------------------- 2003 2002 ------ --------- (IN THOUSANDS) Net income (loss)........................................... $3,143 $(133,356) Net income (loss) per share................................. $ 0.06 $ (2.80)
Net income and net income per share in the first quarter of 2003 reflect the improvement in income from continuing operations as well as the gain recorded on the disposal of discontinued operations. The net loss and net loss per share reported in the first quarter of 2002 reflected the loss from continuing operations, a $8.0 million loss on disposal of discontinued operations and the $111.7 goodwill impairment charge recorded as a cumulative effect of an accounting change as a result of the adoption of SFAS No. 142, Goodwill and Other Intangible Assets. BUSINESS SEGMENTS ENVELOPE SALES
QUARTER ENDED MARCH 31 ----------------------- 2003 2002 -------- -------- (IN THOUSANDS) Ongoing..................................................... $179,071 $182,448 Filing Products division................................ -- 18,527 -------- -------- Reported.................................................... $179,071 $200,975 ======== ========
OPERATING INCOME
QUARTER ENDED MARCH 31 ---------------------- 2003 2002 ------- -------- (IN THOUSANDS) Ongoing..................................................... $17,862 $ 18,017 Filing Products division................................ -- 1,408 Restructuring........................................... -- (12,013) ------- -------- Reported.................................................... $17,862 $ 7,412 ======= ========
Reported sales of the Envelope segment in the first quarter of 2003 were $179.1 million, $21.9 million below sales in the first quarter of 2002. Excluding sales of the filing products division, which 22 was sold in August 2002, the sales decline was $3.4 million, or 2%. This sales decline was due to competitive pricing pressures and lower sales of higher value added products, partially offset by a favorable foreign currency impact on the sales of our Canadian operations. Overall unit volume was slightly higher than in the first quarter of 2002. We sold more units of transactional (e.g., bill and remittance) envelopes during the first quarter of 2003 than during the first quarter of 2002. This increase offset a decline in units sold to our direct mail and merchant and office products customers. Direct mail promotional spending was down especially towards the end of the quarter due to the uncertainty about the war in Iraq. Reported operating income of the Envelope segment in the first quarter of 2003 was $17.9 million, $10.5 million higher than the first quarter of 2002. Excluding the operating income of the filing products division and restructuring expenses, operating income was slightly below the first quarter of 2002. The impact of lower sales was partially mitigated by improvements in manufacturing efficiencies and lower administrative expenses. COMMERCIAL PRINTING SALES
QUARTER ENDED MARCH 31 ----------------------- 2003 2002 -------- -------- (IN THOUSANDS) Ongoing..................................................... $195,076 $187,217 Digital Graphics division............................... 2,872 3,537 -------- -------- Reported.................................................... $197,948 $190,754 ======== ========
OPERATING INCOME (LOSS)
QUARTER ENDED MARCH 31 ---------------------- 2003 2002 ------ ------- (IN THOUSANDS) Ongoing..................................................... $2,419 $(2,851) Digital Graphics division............................... 167 (43) Restructuring........................................... (825) (1,007) ------ ------- Reported.................................................... $1,761 $(3,901) ====== =======
Reported sales of the Commercial Printing segment in the first quarter of 2003 were $197.9 million, $7.2 million, or 4%, higher than sales in the first quarter of 2002. Excluding sales of the digital graphics operations, which were sold in February 2003, the sales increase was $7.9 million, or 4%. Sales of our high-impact printing to our national and regional customers were only slightly lower in the first quarter of 2003 compared to the first quarter of 2002. Excluding sales of $9.2 million of the acquisition completed in August 2002, sales to our local commercial printing customers were about $1.3 million below the first quarter of 2002. This decline can be attributed to the closure of our operation in New York City in September 2002, which had sales of $3.8 million in the first quarter of 2002. Reported operating income of the Commercial Printing segment in the first quarter of 2003 was $1.8 million, an improvement of $5.7 million over the operating loss reported in the first quarter of 2002. Excluding the operating income of the digital graphics operations and restructuring expenses, operating income was $2.4 million, an improvement of $5.3 million from the first quarter of 2002. The improvement in ongoing operating income can be attributed to the acquisition completed in August 2002 and improvements that are the result of the restructuring actions taken during the second half of 2002. Despite competitive pricing pressures, overall contribution margin has improved slightly due to improvements in manufacturing efficiencies. Lower manufacturing overhead and administrative expenses are primarily the result of the closure of our operation in New York City, the consolidation of our web operation in Indianapolis with our web operations in St. Louis and Baltimore, and other cost control programs. Selling expenses were also lower in the quarter compared to the first quarter of 23 2002 as a result of the consolidation of several sales offices and a reorganization of our sales management. PRINTED OFFICE PRODUCTS SALES
QUARTER ENDED MARCH 31 ----------------------- 2003 2002 ------- ------- (IN THOUSANDS) Reported.................................................... $50,300 $51,753
OPERATING INCOME
QUARTER ENDED MARCH 31 ----------------------- 2003 2002 ------- ------- (IN THOUSANDS) Ongoing..................................................... $3,650 $4,441 Restructuring........................................... 140 (880) ------ ------ Reported.................................................... $3,790 $3,561 ====== ======
Sales of Printed Office Products in the first quarter of 2003 were $50.3 million, $1.5 million below sales in the first quarter of 2002. This sales decline was due primarily to lower sales of business forms, especially continuous forms and mailers, and sales lost as a result of the closure of the Denver manufacturing facility. Sales of our label products were comparable to the first quarter of 2002. Operating income of Printed Office Products in the first quarter of 2003 was $3.8 million, $0.2 million higher than the first quarter of 2002. Excluding restructuring expenses, operating income was $3.7 million, $0.8 million lower than the first quarter of 2002. The decline in operating income was due to the decline in sales, lower margins due to competitive pricing pressures, and increases in employee benefit costs partially offset by lower fixed manufacturing and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2003, our outstanding debt had increased $13.4 million to $777.3 million from the balance of $763.9 million at December 31, 2002. We used $13.5 million in operations during the first quarter of 2003 primarily as a result of an increase in accounts receivable and a reduction in accounts payable. In the first quarter of 2002, operations generated $7.7 million of cash flow. Capital expenditures were $6.4 million in the first quarter of 2003 compared to $11.3 million in the first quarter of 2002. The $3.9 million of net proceeds received from the sale of the digital graphics operations in March 2003 were applied to our revolving bank debt. The following table summarizes our cash payment obligations as of March 31, 2003 by year:
TOTAL CASH LONG-TERM DEBT OPERATING LEASES OBLIGATIONS -------------- ---------------- ----------- Year 1..................... $ 2,193 $ 31,492 $ 33,685 Year 2..................... 1,283 26,035 27,318 Year 3..................... 117,179 22,133 139,312 Year 4..................... 843 18,067 18,910 Year 5..................... 908 13,190 14,098 Thereafter................. 654,845 15,862 670,707 -------- -------- -------- Total...................... $777,251 $126,779 $904,030 ======== ======== ========
24 At March 31, 2003, we had outstanding letters of credit of approximately $24.5 million related to performance and payment guarantees. In addition, we have issued letters of credit of $2.3 million as credit enhancements in conjunction with other debt. Based on our experience with these arrangements, we do not believe that any obligations that may arise will be significant. Our credit ratings as of March 31, 2003 were as follows:
SENIOR SENIOR SENIOR SECURED UNSECURED SUBORDINATED RATING AGENCY DEBT DEBT DEBT LAST UPDATE - ------------- ------- --------- ------------ ----------- Standard & Poor's..... BB- BB- B July-02 Moody's............... B1 B1 B3 February-02
The terms of our existing debt do not have any rating triggers, and we do not believe that our current ratings will impact our ability to raise additional capital. We expect to be able to fund our operations, capital expenditures and debt and other contractual commitments within the next year from internally generated cash flow and funds available under our senior credit facility. At March 31, 2003, we had $102.2 million of unused credit available under this credit facility. SEASONALITY AND ENVIRONMENT Our commercial printing business experiences seasonal variations. Our revenues from annual reports are generally concentrated from February through April. Revenues associated with holiday catalogs and automobile brochures tend to be concentrated from July through October, and calendars from May to September. As a result of these seasonal variations, we are at or near capacity in some facilities at certain times during these periods. Several consumer direct market segments served by our envelope business and certain segments of the direct mail market, experience seasonality, with a higher percentage of the volume of products sold to these markets occurring during the fourth quarter of the year. This seasonality is due to the increase in sales to the direct mail market due to holiday purchases. Seasonality is offset by the diversity of our other products and markets, which are not materially affected by seasonal conditions. Environmental matters have not had a material financial impact on our historical operations and are not expected to have a material impact in the future. NEW ACCOUNTING STANDARDS In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. Among other provisions, SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt. Accordingly, gains or losses from extinguishment of debt shall not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the criteria of Accounting Principles Board ("APB") Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. Gains or losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing operations in all prior periods presented. The Company adopted the provisions of SFAS No. 145 as of January 1, 2003 and reclassified a loss from the early extinguishment of debt that was reported as an extraordinary item recorded in the first quarter of 2002 into income from continuing operations. In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 ("Interpretation 46"). Interpretation 46 requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interest in 25 the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity. Interpretation 46 currently applies to variable interest entities created after January 31, 2003 and to variable interest entities in which a company obtains an interest after that date. Since we had no such interests arising after January 31, 2003, this interpretation has had no impact on our consolidated results of operations or consolidated balance sheet to date. Beginning in the third quarter of 2003, we must apply Interpretation 46 to all interests in variable interest entities existing prior to January 31, 2003. We are the lessee in a series of leases covering our leased machinery and equipment. The lessors are financing entities that we do not consolidate. These operating and synthetic leases do not contain a fixed-price purchase option and we generally are not at risk for losses. We currently believe that it is unlikely that we will be required to consolidate the underlying entities upon application of the interpretation. AVAILABLE INFORMATION Our Internet address is: www.mailwell.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are filed electronically with the Securities and Exchange Commission. In addition, our earnings conference calls and presentations to securities analysts are web cast live via our website. LEGAL PROCEEDINGS From time to time we may be involved in claims or lawsuits that arise in the ordinary course of business. Accruals for claims or lawsuits have been provided for to the extent that losses are deemed probable and estimable. Although the ultimate outcome of these claims or lawsuits cannot be ascertained, on the basis of present information and advice received from counsel, it is our opinion that the disposition or ultimate determination of such claims or lawsuits will not have a material adverse effect on us. FORWARD-LOOKING INFORMATION This report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," may contain various "forward-looking statements," within the meaning of Section 21E of the Securities Exchange Act of 1934, that are based on management's belief and assumptions, as well as information currently available to management. Although we believe that the expectations reflected in any such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual financial results, performance or condition may vary materially from those expected. Some of the key factors that may have a direct bearing on our actual financial results, performance or condition are as follows: * Paper and other raw material costs * The degree and nature of competition * The ability to achieve productivity and cost savings goals * The success of certain strategic initiatives, including "Total Company Selling" strategy * Postage rates and other changes in the direct-mail industry * Interest rates and foreign currency exchange rates * Ability to obtain additional or alternative financing 26 * General economic conditions * General labor conditions * The impact of the Internet and other electronic media on the demand for envelopes and printed material * Other factors as described in our most recent annual report on Form 10-K under the heading "Forward Looking Information" In view of such uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We do not assume any obligation to update these forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks such as changes in interest and foreign currency exchange rates, which may adversely affect results of operations and financial position. Risks from interest and foreign currency exchange rate fluctuations are managed through normal operating and financing activities. We do not utilize derivatives for speculative purposes, nor did we hedge interest rate exposure through the use of swaps and options or foreign exchange exposure through the use of forward contracts as of December 31, 2002. However, the Board of Directors have given management authority to engage in interest rate swaps and we are currently considering this option. Exposure to market risk from changes in interest rates relates primarily to our variable rate debt obligations. The interest on this debt is the London Interbank Offered Rate ("LIBOR") plus a margin. At March 31, 2003, we had variable rate debt outstanding of $118.1 million. A 1% increase in LIBOR on the maximum amount of debt subject to variable interest rates, which is $301.8 million, would increase our interest expense by $3.0 million and reduce our net income by approximately $1.8 million. We have operations in Canada, and thus are exposed to market risk for changes in foreign currency exchange rates of the Canadian dollar. ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities. CHANGES IN INTERNAL CONTROLS. There were no significant changes in our internal controls or procedures or in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date. 27 PART IV ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Certificate of Incorporation of Mail-Well Corporation-- incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.2 Certificate of Amendment of Certificate of Incorporation of Mail-Well Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.3 Certificate of Correction Filed to Correct Certain Errors in the Certificate of Amendment of Mail-Well I Corporation Filed in the Office of the Secretary of State of Delaware on September 11, 1995--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.4 Certificate of Change of Registered Agent and Registered Office--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 3.5 Bylaws of Mail-Well I Corporation--incorporated by reference from Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409). 4.1 Indenture dated as of December 16, 1998 between Mail-Well I Corporation and State Street Bank and Trust Company, as Trustee, relating to Mail-Well I Corporation's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008--incorporated by reference from Exhibit 4.4 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 4.2 Form of Senior Subordinated Note--incorporated by reference from Exhibit 4.5 to Mail-Well, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 1-12551. 4.3 Indenture dated as of March 13, 2002 between Mail-Well I Corporation and State Street Bank and Trust Company, as Trustee relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount of 9 5/8% Senior Notes due 2012--incorporated by reference to Exhibit 10.30 to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 4.4 Form of Senior Note and Guarantee relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount 9 5/8% due 2012--incorporated by reference to Exhibit 10.31 to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 10.1 Form of Indemnity Agreement between Mail-Well, Inc. and each of its officers and directors--incorporated by reference from Exhibit 10.17 of Mail-Well, Inc.'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 Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 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 Mail-Well, Inc.'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 Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 28 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.5 Form of Mail-Well, Inc. Incentive Stock Option Agreement--incorporated by reference from Exhibit 10.22 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.6 Form of Mail-Well, Inc. Nonqualified Stock Option Agreement-- incorporated by reference from Exhibit 10.23 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.7 1997 Non-Qualified Stock Option Agreement--incorporated by reference from Exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1997. 10.8 Mail-Well, Inc. 1998 Incentive Stock Option Plan 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. 10.9 Mail-Well, Inc. 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.10 Form of Non-Qualified Stock Option Agreement under 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.11 Form of Incentive Stock Option Agreement under 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.12 Form of Restricted Stock Award Agreement under 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.13 Purchase Agreement dated March 8, 2002, between Mail-Well I Corporation, and Credit Suisse First Boston, UBS Warburg LLC, Banc of America Securities LLC, U.S. Bancorp Piper Jaffray Inc., First Union Securities, Inc., and Scotia Capital (USA) Inc., as Initial Purchasers, relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount of 9 5/8% Senior Notes due 2012--incorporated by reference to Exhibit 10.30 to Mail-Well I Corporation's Registration Statement on Form S-4 filed June 11, 2002. 10.14 Registration Rights Agreement dated March 13, 2002, between Mail-Well I Corporation, and Credit Suisse First Boston, UBS Warburg LLC, Banc of America Securities LLC, U.S. Bancorp Piper Jaffray Inc., First Union Securities, Inc., and Scotia Capital (USA) Inc., as Initial Purchasers, relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount of 9 5/8% Senior Notes due 2012--incorporated by reference to Exhibit 10.32 to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 10.15 Amended and Restated Credit Agreement dated June 27, 2002, among the Company, Mail-Well I Corporation, the domestic subsidiaries of Mail-Well I Corporation named in the agreement, the financial institutions from time to time parties thereto, and Bank of America, N.A., as administrative agent--incorporated by reference to Exhibit 10.27 of Mail-Well, Inc.'s Form 10-Q for the quarter ended June 30, 2002. 10.16 Amended and Restated Security Agreement dated June 27, 2002, among the Company, Mail-Well I Corporation, the domestic subsidiaries of Mail-Well I Corporation named in the agreement, and Bank of America, N.A., as agent--incorporated by reference to Exhibit 10.28 of Mail-Well, Inc.'s Form 10-Q for the quarter ended June 30, 2002. 10.17 Amendment No. 1 to Amended and Restated Credit Agreement, dated September 27, 2002 among Mail-Well, Inc., Mail-Well I Corporation, certain subsidiaries of Mail-Well I, the 29 EXHIBIT NUMBER DESCRIPTION - ------- ----------- lenders under the Amended and Restated Credit Agreement, and Bank of America, N.A., as administrative agent for the lenders--incorporated by reference to Exhibit 10.36 of Mail-Well I Corporation's Amendment No. 2 to Registration Statement on Form S-4 filed October 8, 2002. 10.18 Second Amended and Restated Equipment Lease dated as of August 6, 2002 between Wells Fargo Bank Northwest, National Association, as trustee under MW 1997-1 Trust, and Mail-Well I Corporation--incorporated by reference to Exhibit 10.26 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.19 Second Amended and Restated Guaranty Agreement dated as of August 6, 2002, among Mail-Well I Corporation as Lessee, certain of its subsidiaries and Mail-Well, Inc. as Guarantors, Fleet Capital Corporation as Agent, and the Trust Certificate Purchasers named therein--incorporated by reference to Exhibit 10.27 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.20 Second Amended and Restated Participation Agreement dated as of August 6, 2002, among Mail-Well I Corporation as Lessee, Fleet Capital Corporation as Arranger and Agent, and the Trust Certificate Purchasers named therein--incorporated by reference to Exhibit 10.28 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.21 Amendment Agreement No. 1 dated as of September 25, 2002, among Mail-Well I Corporation as Lessee, certain of its subsidiaries and Mail-Well, Inc. as Guarantors, Fleet Capital Corporation as Agent, and the Trust Certificate Purchasers named therein--incorporated by reference to Exhibit 10.29 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.22 Amendment No. 2 to Amended and Restated Credit Agreement, dated December 27, 2002, among the Company, Mail-Well I Corporation, certain subsidiaries of Mail-Well I, the lenders under the Amended and Restated Credit Agreement, and Bank of America, N.A., as administrative agent for the lenders--incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed January 8, 2003. 10.23 Amendment No. 1 to Amended and Restated Security Agreement, dated December 27, 2002, among the Company, Mail-Well I Corporation, certain subsidiaries of Mail-Well I, and Bank of America, N.A., as agent-- incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K filed January 8, 2003. 10.24 Employment and Executive Severance Agreement dated as of March 10, 2003, between the Company and Paul V. Reilly. 10.25 Form of Executive Severance Agreement entered into between the Company and each of the following: Michel Salbaing, Gordon Griffiths, Brian Hairston, Keith Pratt, William Huffman, D. Robert Meyer and Mark Zoeller. 99.1* Certification of Periodic Report by Paul V. Reilly, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. 99.2* Certification of Periodic Report by Michel P. Salbaing, Senior Vice President--Finance and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - ------- * Furnished herewith. 30 (b) REPORTS ON FORM 8-K 1. Current report filed under Item 5 of Form 8-K dated as of January 8, 2003 in connection with Amendment No. 2 to Amended and Restated Credit Agreement, and Amendment No. 1 to Amended and Restated Security Agreement, each dated as of December 27, 2002. 2. Current report filed under Item 5 of Form 8-K dated as of February 10, 2003 in connection with the accompanying pro forma condensed consolidated income statements. 3. Current report filed under Item 5 of Form 8-K dated as of February 10, 2003 in connection with the Company's earnings release for the fourth quarter. 4. Current report filed under Item 5 of Form 8-K dated as of February 19, 2003 in connection with the script of the Company's investor conference call held on February 10, 2003. 5. Current report filed under Item 9 of Form 8-K dated as of March 20, 2003 in connection with certifications of the Company's CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, in the city of Englewood, state of Colorado, on May 5, 2003. MAIL-WELL, INC. By: /s/ PAUL V. REILLY ------------------------------------------- Paul V. Reilly, Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) By: /s/ MICHEL P. SALBAING ------------------------------------------- Michel P. Salbaing, Senior Vice President-- Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 32 I, Paul V. Reilly, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mail-Well, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 5, 2003 /s/ PAUL V. REILLY --------------------------------------------- Chief Executive Officer 33 I, Michel P. Salbaing, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mail-Well, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 5, 2003 /s/ MICHEL P. SALBAING --------------------------------------------- Chief Financial Officer 34 EX-99.1 3 exh99p1.txt CERTIFICATION OF CEO Exhibit 99.1 CERTIFICATION OF PERIODIC REPORT -------------------------------- I, Paul V. Reilly, chairman, president and chief executive officer of Mail-Well, Inc. (the "Company"), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 5, 2003 /s/ Paul V. Reilly -------------------------------- Paul V. Reilly Chairman, President and CEO EX-99.2 4 exh99p2.txt CERTIFICATION OF CFO Exhibit 99.2 CERTIFICATION OF PERIODIC REPORT -------------------------------- I, Michel P. Salbaing, senior vice president and chief financial officer of Mail-Well, Inc. (the "Company"), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 5, 2003 /s/ Michel P. Salbaing -------------------------------- Michel P. Salbaing Senior Vice President and CFO -----END PRIVACY-ENHANCED MESSAGE-----