-----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, M9f/CrYpa8jeMQBZXAPHOjge5XtFvAUaNaNIMw90F8KpbsF89CsqIS2WzO+diAKe owmeGOdwRCJOOveDxrx/YQ== 0001068800-03-000488.txt : 20030804 0001068800-03-000488.hdr.sgml : 20030804 20030801175421 ACCESSION NUMBER: 0001068800-03-000488 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030804 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: 03818970 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 mw10q.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 JUNE 30, 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 July 31, 2003 was $76,193,820. As of July 31, 2003 the Registrant had 48,386,626 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................................. 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................................... 32 Item 4. Controls and Procedures..................................... 32 PART II--OTHER INFORMATION Item 5. Submission of Matters to a Vote of Securities Holders....... 33 PART IV Item 6. Exhibits and Reports on Form 8-K............................ 34
i PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAIL-WELL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
JUNE 30, 2003 (UNAUDITED) DECEMBER 31, 2002 ------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents............................... $ 746 $ 2,650 Accounts receivable, net................................ 200,013 219,924 Inventories, net........................................ 101,486 103,533 Net assets held for sale................................ -- 4,492 Other current assets.................................... 31,795 45,762 ---------- ---------- TOTAL CURRENT ASSETS................................ 334,040 376,361 Property, plant and equipment, net.......................... 396,489 379,624 Goodwill.................................................... 298,014 290,361 Other intangible assets, net................................ 17,723 18,586 Other assets, net........................................... 40,341 42,435 ---------- ---------- TOTAL ASSETS................................................ $1,086,607 $1,107,367 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................................ $ 123,028 $ 151,930 Accrued compensation and related liabilities............ 49,095 53,292 Other current liabilities............................... 62,050 67,848 Current maturities of long-term debt.................... 2,819 2,961 ---------- ---------- TOTAL CURRENT LIABILITIES........................... 236,992 276,031 Long-term debt.............................................. 765,245 760,938 Deferred income taxes....................................... 5,245 10,336 Other liabilities........................................... 17,108 17,294 ---------- ---------- TOTAL LIABILITIES........................................... 1,024,590 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, 48,386,626 and 48,337,031 shares issued and outstanding as of June 30, 2003 and December 31, 2002, respectively.................................... 484 483 Paid-in capital......................................... 213,988 213,826 Retained deficit........................................ (155,034) (155,481) Deferred compensation................................... (2,319) (2,471) Accumulated other comprehensive income (loss)........... 4,898 (13,589) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY.......................... 62,017 42,768 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $1,086,607 $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 JUNE 30 SIX MONTHS ENDED JUNE 30 --------------------------- ------------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Net sales............................... $407,826 $420,967 $ 835,146 $ 864,449 Cost of sales........................... 328,917 342,129 672,350 697,582 -------- -------- --------- --------- Gross profit............................ 78,909 78,838 162,796 166,867 Operating expenses: Selling, general and administrative.................... 62,747 69,048 126,226 137,239 Amortization of intangibles......... 418 514 863 1,016 Loss from the early extinguishment of debt........................... -- 8,718 -- 16,463 Impairment loss on assets held for sale.............................. -- 8,871 -- 8,871 Impairment on operations formerly held for sale..................... -- 10,407 -- 10,407 Restructuring and other charges..... 119 9,273 804 23,800 -------- -------- --------- --------- Operating income (loss)................. 15,625 (27,993) 34,903 (30,929) Other expense: Interest expense.................... 18,119 18,973 36,333 33,878 Other............................... 355 45 487 337 -------- -------- --------- --------- Loss from continuing operations before income taxes and cumulative effect of a change in accounting principle...... (2,849) (47,011) (1,917) (65,144) Income tax benefit...................... (1,168) (8,942) (767) (13,466) -------- -------- --------- --------- Loss from continuing operations before cumulative effect of a change in accounting principle.................. (1,681) (38,069) (1,150) (51,678) Loss (gain) on disposal of discontinued operations............................ 581 153 (1,919) 8,152 Cumulative effect of a change in accounting principle.................. -- -- 322 111,748 -------- -------- --------- --------- Net income (loss)....................... $ (2,262) $(38,222) $ 447 $(171,578) ======== ======== ========= ========= Earnings (loss) per share--basic and diluted: Continuing operations............... $ (0.04) $ (0.80) $ (0.02) $ (1.08) Discontinued operations............. (0.01) -- 0.04 (0.17) Cumulative effect of a change in accounting principle.............. -- -- (0.01) (2.35) -------- -------- --------- --------- Earnings (loss) per share--basic and diluted............................... $ (0.05) $ (0.80) $ 0.01 $ (3.60) ======== ======== ========= ========= Weighted average shares--basic.......... 47,679 47,668 47,672 47,663 Weighted average shares--diluted........ 47,679 47,668 48,207 47,663 See notes to condensed consolidated financial statements.
2 MAIL-WELL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
SIX MONTHS ENDED JUNE 30 --------------------------- 2003 2002 --------- --------- Cash flows from operating activities: Loss from continuing operations........................... $ (1,150) $ (51,678) Adjustments to reconcile loss from continuing operations to net cash provided by operating activities: Depreciation......................................... 23,347 23,021 Amortization......................................... 2,815 4,060 Noncash portion of restructuring, impairment and other charges....................................... -- 30,257 Deferred income tax benefit.......................... (6,270) (10,404) Loss on disposal of assets........................... 581 535 Other noncash charges, net........................... 846 69 Changes in operating assets and liabilities, excluding the effects of acquisitions and dispositions: Accounts receivable.................................. 26,150 33,112 Inventories.......................................... 4,070 1,576 Accounts payable and accrued compensation............ (37,009) (3,302) Accrued taxes........................................ 8,808 (7,253) Other working capital changes........................ (2,634) (6,600) Other, net................................................ 605 958 --------- --------- Net cash provided by operating activities........... 20,159 14,351 Cash flows from investing activities: Acquisitions.......................................... -- (1,021) Capital expenditures.................................. (13,010) (21,409) Proceeds from divestitures, net....................... 3,864 96,887 Proceeds from sales of property, plant and equipment........................................... 627 6,053 --------- --------- Net cash (used in) provided by investing activities........................................ (8,519) 80,510 Cash flows from financing activities: Proceeds from issuance of common stock................ 16 18 Proceeds from issuance of long-term debt.............. 947,205 706,288 Repayments of long-term debt.......................... (960,947) (629,114) Capitalized loan fees................................. (437) (16,574) --------- --------- Net cash (used in) provided by financing activities........................................ (14,163) 60,618 Effect of exchange rate changes on cash and cash equivalents................................................ 619 (129) Cash flows from discontinued operations..................... -- (8,550) --------- --------- Net (decrease) increase in cash and cash equivalents....................................... (1,904) 146,800 Cash and cash equivalents at beginning of year.............. 2,650 894 --------- --------- Cash and cash equivalents at end of period.................. $ 746 $ 147,694 ========= ========= See notes to condensed consolidated financial statements.
3 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 and six months ended June 30, 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. The Company adopted the Financial Accounting Standards Board Interpretation ("FASB") No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, ("Interpretation 46") retroactive to January 1, 2003. The first quarter Form 10-Q dated March 31, 2003 will be restated prospectively. The implementation of Interpretation 46 did not have an impact on earnings per share from continuing operations the first quarter of 2003. 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 the condensed consolidated statement of operations for the six months ended June 30, 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 2002 into income from continuing operations and the restatement of the condensed consolidated statements of operations for the three and six months ended June 30, 2002. The table below is a reconciliation of loss per share for the six months ended June 30, 2002 as originally reported and the loss per share as restated.
JUNE 30, 2002 AS ORIGINALLY IMPACT OF IMPACT OF JUNE 30, 2002 REPORTED SFAS 142 SFAS 145 RESTATED ------------- --------- --------- ------------- Loss per share--basic and diluted*: Continuing operations........................ $(0.87) $ -- $(0.22) $(1.08) Discontinued operations...................... (0.17) -- -- (0.17) Extraordinary items.......................... (0.22) -- 0.22 -- Cumulative effect of a change in accounting principle.................................. -- (2.35) -- (2.35) ------ ------ ------ ------ Loss per share............................... $(1.26) $(2.35) $ -- $(3.60) ====== ====== ====== ====== - --------------- * The individual components of loss per share may not equal the total loss per share due to rounding.
4 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. NEW ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation 46 which requires the consolidation of variable interest entities ("VIE") 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 the enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity. The Company leases printing equipment from a bankruptcy-remote trust (the "Trust") under an operating lease. At the end of the lease, the Company has the option to purchase the equipment for the aggregate outstanding loan balance of the Trust or to direct the sale of the equipment to a third party. If the Company were to direct the sale of the equipment, it has guaranteed the Trust that the proceeds from the sale will be at least 60.9% of the original fair value of the leased assets which could be as much as $11.6 million. If the sales proceeds exceed the guaranteed value of the leased assets, the Company retains the excess. The Company began consolidating this Trust effective January 1, 2003, because it believes it is the primary beneficiary of this VIE under Interpretation 46. As of the adoption date, the Company consolidated equipment valued at $18.1 million, net of accumulated depreciation, and debt of $18.5 million and recorded a charge of $0.3 million, net of tax, as a cumulative effect of a change in accounting principle. Rent expense reported for the six months ended June 30, 2003, decreased $1.2 million, while depreciation expense and interest expense increased by $1.3 million and $0.5 million, respectively. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively, with the exception of certain SFAS No. 133 implementation issues that were effective for all fiscal quarters prior to June 15, 2003. This statement does not impact the financial statements of the Company. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This statement does not impact the financial statements of the Company. 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. 5 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. STOCK-BASED COMPENSATION (CONTINUED) The following table illustrates the pro forma effect of net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for the three and six months ended June 30, 2003 and 2002 (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------- ---------------------- 2003 2002 2003 2002 --------- --------- ------ --------- Net income (loss): As reported...................... $ (2,262) $ (38,222) $ 447 $(171,578) Pro forma........................ (2,818) (39,110) (1,407) (174,539) Earnings (loss) per share--basic and diluted: As reported...................... $ (0.05) $ (0.80) $ 0.01 $ (3.60) Pro forma........................ (0.06) (0.82) (0.03) (3.66)
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. 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 will be paid if annual revenues during each year of the five year period commencing on January 1, 2003 total a specified amount. This may result in additional consideration of up to $17.5 million. Sales included in the three and six months ended June 30, 2003 were $20.8 and $30.0 million, respectively. 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 and six months ended June 30, 2003 and 2002 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- -------------------- 2003 2002 2003 2002 ------ ------- ------ ------- Sales........................................ -- $21,228 $2,872 $43,291 Operating income............................. -- $ 1,241 $ 167 $ 2,606
6 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 6. SUPPLEMENTAL BALANCE SHEET INFORMATION INVENTORIES The Company's inventories by major category are as follows (in thousands):
JUNE 30, DECEMBER 31, 2003 2002 -------- ------------ Raw materials.......................................... $ 31,002 $ 32,515 Work in process........................................ 21,857 25,832 Finished goods......................................... 54,685 50,854 -------- -------- 107,544 109,201 Reserves............................................... (6,058) (5,668) -------- -------- $101,486 $103,533 ======== ========
PROPERTY, PLANT AND EQUIPMENT The Company's investment in property, plant and equipment consists of the following (in thousands):
JUNE 30, DECEMBER 31, 2003 2002 --------- ------------ Land and land improvements............................. $ 20,316 $ 19,529 Buildings and improvements............................. 110,376 105,646 Machinery and equipment................................ 490,674 463,896 Furniture and fixtures................................. 15,785 15,178 Construction in progress............................... 11,771 5,510 --------- --------- 648,922 609,759 Accumulated depreciation............................... (252,433) (230,135) --------- --------- $ 396,489 $ 379,624 ========= =========
The December 31, 2002 balances do not include the impact of the implementation of Interpretation 46 (see Note 2). Property, plant and equipment at June 30, 2003 includes $16.8 million of assets in a VIE that was consolidated on January 1, 2003. COMPREHENSIVE INCOME (LOSS) A summary of the comprehensive income (loss) is as follows (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- ------------------------- 2003 2002 2003 2002 -------- --------- ------- --------- Net income (loss)...................... $(2,262) $(38,222) $ 447 $(171,578) Other comprehensive income: Currency translation adjustment, net... 11,099 5,779 18,487 4,431 ------- -------- ------- --------- Comprehensive income (loss)............. $ 8,837 $(32,443) $18,934 $(167,147) ======= ======== ======= =========
7 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. LONG-TERM DEBT At June 30, 2003 and December 31, 2002, long-term debt consisted of the following (in thousands):
JUNE 30, DECEMBER 31, 2003 2002 -------- ------------ Senior Secured Credit Facility, due 2005............... $ 90,438 $101,932 Senior Notes, due 2012................................. 350,000 350,000 Senior Subordinated Notes, due 2008.................... 300,000 300,000 Other.................................................. 27,626 11,967 -------- -------- 768,064 763,899 Less current maturities................................ (2,819) (2,961) -------- -------- Long-term debt...................................... $765,245 $760,938 ======== ========
The December 31, 2002 balances do not include the impact of the implementation of Interpretation 46 (see Note 2). Long-term debt at June 30, 2003 includes debt of $17.8 million of a VIE that was consolidated on January 1, 2003. During 2002, the Company expensed deferred financing costs in connection with the early payment of the term loans of the bank credit facility which was replaced with a new asset based credit facility in June 2002. These write-offs of $8.7 million and $16.5 million are reported as loss from the early extinguishment of debt in the condensed consolidated statement of operations for the three and six months ended June 30, 2002, respectively. 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 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 June 30, 2003, the Company was in compliance with all of the covenants of its various debt agreements. 8. RESTRUCTURING AND OTHER CHARGES The Company has completed the restructuring programs initiated in June 2001 which continued during 2002. The restructuring expenses related to these programs recorded during the six-month period ended June 30, 2003 were $0.8 million. These expenses were as follows (in thousands):
PRINTED COMMERCIAL OFFICE PRINTING PRODUCTS TOTAL ---------- -------- ----- Employee separation and related expenses.................... $ 43 $(140) $(97) Equipment moves............................................. 865 -- 865 Other exit costs............................................ 92 (56) 36 ------ ----- ---- Total................................................... $1,000 $(196) $804 ====== ===== ====
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 8 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 8. RESTRUCTURING AND OTHER CHARGES (CONTINUED) related equipment to St. Louis, Missouri and Baltimore, Maryland. A substantial portion of the cost to dismantle, move and reinstall this equipment was incurred during the six months ended June 30, 2003. The other restructuring charges incurred relate to plans initiated in the fourth quarter of 2002 to right size 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 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 six months ended June 30, 2003 is as follows (in thousands):
PRINTED COMMERCIAL OFFICE PRINTING PRODUCTS TOTAL ---------- -------- ------- Balance, December 31, 2002.......................... $ 3,990 $ 653 $ 4,643 Payments for severance.......................... (189) (149) (338) Payments for lease termination and property exit costs......................................... (1,437) (40) (1,477) Payments for other exit costs................... (163) (268) (431) Reversal of unused accrual...................... -- (16) (16) ------- ----- ------- Balance, June 30, 2003.............................. $ 2,201 $ 180 $ 2,381 ======= ===== =======
A summary of the activity charged to the 2001 restructuring liability during the six months ended June 30, 2003 is as follows (in thousands):
COMMERCIAL ENVELOPE PRINTING TOTAL -------- ---------- ------ Balance, December 31, 2002............................ $2,518 $ 449 $2,967 Payments for severance............................ (286) -- (286) Payments for lease termination and property exit costs........................................... (556) (377) (933) ------ ----- ------ Balance, June 30, 2003................................ $1,676 $ 72 $1,748 ====== ===== ======
9. DISCONTINUED OPERATIONS During the first quarter of 2003, a gain was recorded 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 the Company's prime label business, which was sold in May 2002. The gain was reduced by $0.6 million in the second quarter based on the completion of the tax return. 9 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 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):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- ---------------------- 2003 2002 2003 2002 ------- -------- ------- -------- Numerator: Numerator for basic and diluted loss per share--loss from continuing operations...... $(1,681) $(38,069) $(1,150) $(51,678) ======= ======== ======= ======== Denominator: Denominator for basic loss per share--weighted average shares.............................. 47,679 47,668 47,672 47,663 Effects of dilutive securities: Stock options and restricted stock........ -- -- 535 -- ------- -------- ------- -------- Denominator for diluted loss per share-- adjusted weighted average shares and assumed conversions......................... 47,679 47,668 48,207 47,663 ======= ======== ======= ======== Loss for continuing operations per share: Basic and diluted......................... $ (0.04) $ (0.80) $ (0.02) $ (1.08) ======= ======== ======= ========
During the three and six months ended June 30, 2002, interest, net of tax, on Convertible Notes in the amount of $1.2 million and $2.4 million, respectively, and shares of 7,319,000 that would have been 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 addition, the outstanding options and shares of restricted stock in 2003 and 2002 in the amount of 6,887,000 and 6,773,000 common shares, respectively, were excluded from the calculation of diluted loss per share because the effect would be antidilutive. 11. SEGMENT INFORMATION The Company operates in three principal operating segments. The Commercial Printing segment specializes in high impact printing, which includes a wide range of premium printed products such as annual reports, car brochures and brand marketing collateral for national and regional customers, and general commercial printing for local and regional customers. 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 and six months ended June 30, 2003 were $4.4 million and $7.6 million, respectively. Intercompany sales for the three and six months ended June 30, 2002 were $2.5 million and $9.4 million, respectively. These amounts are eliminated in consolidation and excluded from reported net sales. 10 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 11. SEGMENT INFORMATION (CONTINUED) The following tables present certain business segment information for the three and six months ended June 30, 2003 and 2002 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- ----------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Net sales: Envelope............................ $170,831 $195,168 $349,902 $396,143 Commercial Printing................. 186,652 173,727 384,601 364,482 Printed Office Products............. 50,343 52,072 100,643 103,824 -------- -------- -------- -------- Total............................... $407,826 $420,967 $835,146 $864,449 ======== ======== ======== ======== Operating income (loss)(a): Envelope............................ $ 13,897 $ 11,453 $ 31,892 $ 18,865 Commercial Printing................. 2,693 (8,062) 4,689 (11,963) Printed Office Products............. 4,772 5,114 8,624 8,675 Corporate........................... (5,737) (36,498) (10,302) (46,506) -------- -------- -------- -------- Total............................... $ 15,625 $(27,993) $ 34,903 $(30,929) ======== ======== ======== ======== Restructuring, impairments and other charges: Envelope............................ $ -- $ 7,545 $ -- $ 19,559 Commercial Printing................. 176 1,448 1,000 2,455 Printed Office Products............. (57) 168 (196) 1,047 Corporate........................... -- 28,108 -- 36,480 -------- -------- -------- -------- Total............................... $ 119 $ 37,269 $ 804 $ 59,541 ======== ======== ======== ======== - --------------- (a) Operating income (loss) is net of all costs and expenses directly related to the segment involved. Corporate expenses are net of certain supplier rebates and 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, impairment loss on assets held for sale and impairment loss on operations formerly held for sale.
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 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. 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. 11 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) 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. 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. 12 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED) June 30, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- ---------- ------------ --------- ------------ Current assets: Cash and cash equivalents.......... $ -- $ (341) $ 1,087 $ -- $ 746 Accounts receivable, net........... -- 47,176 152,837 -- 200,013 Inventories, net................... -- 41,578 59,908 -- 101,486 Other current assets............... -- 23,209 8,586 -- 31,795 ------- ---------- -------- --------- ---------- Total current assets............. -- 111,622 222,418 -- 334,040 Investment in subsidiaries........... 62,017 228,490 -- (290,507) -- Property, plant and equipment, net... -- 98,585 297,904 -- 396,489 Goodwill and other intangible assets, net................................. -- 84,999 230,738 -- 315,737 Note receivable from subsidiaries.... -- 603,100 -- (603,100) -- Other assets, net.................... -- 31,825 8,516 -- 40,341 ------- ---------- -------- --------- ---------- Total assets......................... $62,017 $1,158,621 $759,576 $(893,607) $1,086,607 ======= ========== ======== ========= ========== Current liabilities: Accounts payable................... $ -- $ 16,661 $106,367 $ -- $ 123,028 Other current liabilities.......... -- 59,137 52,008 -- 111,145 Intercompany payable (receivable)...................... -- 256,697 (256,697) -- -- Current portion of long-term debt.............................. -- 1,767 1,052 -- 2,819 ------- ---------- -------- --------- ---------- Total current liabilities........ -- 334,262 (97,270) -- 236,992 Long-term debt....................... -- 759,606 5,639 -- 765,245 Note payable to Issuer............... -- -- 603,100 (603,100) -- Deferred income tax (asset) liability........................... -- (10,362) 15,607 -- 5,245 Other long-term liabilities.......... -- 13,098 4,010 -- 17,108 ------- ---------- -------- --------- ---------- Total liabilities................ -- 1,096,604 531,086 (603,100) 1,024,590 Shareholders' equity................. 62,017 62,017 228,490 (290,507) 62,017 ------- ---------- -------- --------- ---------- Total liabilities and shareholders' equity.............................. $62,017 $1,158,621 $759,576 $(893,607) $1,086,607 ======= ========== ======== ========= ==========
13 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 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 ======= ========== ========= =========== ==========
14 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Three Months Ended June 30, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ -------- ------------ Net sales............................... $ -- $101,904 $305,922 $ -- $407,826 Cost of sales........................... -- 85,035 243,882 -- 328,917 ------- -------- -------- -------- -------- Gross profit............................ -- 16,869 62,040 -- 78,909 Other operating expenses................ -- 18,054 45,111 -- 63,165 Restructuring and other charges......... -- -- 119 -- 119 ------- -------- -------- -------- -------- Operating income (loss)................. -- (1,185) 16,810 -- 15,625 Other expense (income): Interest expense...................... -- 18,172 13,650 (13,703) 18,119 Other expense (income)................ -- (13,724) 376 13,703 355 ------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes and equity in undistributed earnings of subsidiaries........................... -- (5,633) 2,784 -- (2,849) Income tax benefit...................... -- (2,206) 1,038 -- (1,168) ------- -------- -------- -------- -------- Income (loss) from continuing operations before equity in undistributed earnings of subsidiaries........................ -- (3,427) 1,746 -- (1,681) Equity in undistributed earnings of subsidiaries........................... (2,262) 1,746 -- 516 -- ------- -------- -------- -------- -------- Income (loss) from continuing operations............................. (2,262) (1,681) 1,746 516 643 Loss on disposal........................ -- 581 -- -- 581 ------- -------- -------- -------- -------- Net income (loss)....................... $(2,262) $ (2,262) $ 1,746 $ 516 $ (2,262) ======= ======== ======== ======== ========
15 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Three Months Ended June 30, 2002 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ -------- ------------ Net sales............................... $ -- $127,798 $293,169 $ -- $420,967 Cost of sales........................... -- 108,069 234,059 -- 342,129 -------- -------- -------- -------- -------- Gross profit............................ -- 19,729 59,110 -- 78,838 Operating expenses: Selling, administrative and other..... 29 20,496 49,037 -- 69,562 Restructuring, asset impairments and other charges........................ -- 16,024 21,246 -- 37,269 -------- -------- -------- -------- -------- Operating income (loss)................. (29) (16,791) (11,173) -- (27,993) Other (income) expense: Interest expense...................... 1,262 21,718 12,664 (16,671) 18,973 Other expense (income)................ (1,500) (15,201) 75 16,671 45 -------- -------- -------- -------- -------- Income (loss) from continuing operations, before income taxes and undistributed earnings of subsidiaries........................... 209 (23,308) (23,912) -- (47,011) Provision (benefit) for income taxes.... -- (7,043) (1,899) -- (8,942) -------- -------- -------- -------- -------- Income (loss) from continuing operations, before cumulative effect of a change in accounting principle and undistributed earnings of subsidiaries........................... 209 (16,265) (22,013) -- (38,069) Equity in undistributed earnings of subsidiaries........................... (38,431) (22,166) -- 60,597 -- -------- -------- -------- -------- -------- Income from continuing operations before cumulative effect of a change in accounting principle................... (38,222) (38,431) (22,013) 60,597 (38,069) Loss from discontinued operations....... -- -- 153 -- 153 -------- -------- -------- -------- -------- Net income (loss)....................... $(38,222) $(38,431) $(22,166) $ 60,597 $(38,222) ======== ======== ======== ======== ========
16 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Six Months Ended June 30, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- -------- ------------ -------- ------------ Net sales............................... $ -- $209,547 $625,599 $ -- $835,146 Cost of sales........................... -- 175,019 497,331 -- 672,350 ------ -------- -------- -------- -------- Gross profit............................ -- 34,528 128,268 -- 162,796 Other operating expenses................ -- 33,884 93,205 -- 127,089 Restructuring and other charges......... -- -- 804 -- 804 ------ -------- -------- -------- -------- Operating income (loss)................. -- 644 34,259 -- 34,903 Other expense (income): Interest expense...................... -- 36,259 27,430 (27,356) 36,333 Other expense (income)................ -- (27,381) 512 27,356 487 ------ -------- -------- -------- -------- Income (loss) from continuing operations before income taxes and equity in undistributed earnings of subsidiaries........................... -- (8,234) 6,317 -- (1,917) Income tax benefit...................... -- (3,294) 2,527 -- (767) ------ -------- -------- -------- -------- Income (loss) from continuing operations before equity in undistributed earnings of subsidiaries........................ -- (4,940) 3,790 -- (1,150) Equity in undistributed earnings of subsidiaries........................... 447 3,790 -- (4,237) -- ------ -------- -------- -------- -------- Income (loss) from continuing operations............................. 447 (1,150) 3,790 (4,237) (1,150) Gain on disposal........................ -- (1,919) -- -- (1,919) Cumulative effect of a change in accounting principle................... -- 322 -- -- 322 ------ -------- -------- -------- -------- Net income (loss)....................... $ 447 $ 447 $ 3,790 $ (4,237) $ 447 ====== ======== ======== ======== ========
17 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED) Six Months Ended June 30, 2002 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- --------- ------------ -------- ------------ Net sales............................. $ -- $ 268,672 $ 595,777 $ -- $ 864,449 Cost of sales......................... -- 221,564 476,018 -- 697,582 --------- --------- --------- -------- --------- Gross profit.......................... -- 47,108 119,759 -- 166,867 Operating expenses: Selling, administrative and other... 34 40,022 98,119 -- 138,255 Restructuring, asset impairments and other charges...................... -- 37,183 22,358 -- 59,541 --------- --------- --------- -------- --------- Operating income (loss)............... (34) (30,097) (798) -- (30,929) Other (income) expense: Interest expense.................... 3,000 39,380 26,886 (35,388) 33,878 Other expense (income).............. (3,477) (31,687) 113 35,388 337 --------- --------- --------- -------- --------- Income (loss) from continuing operations, before income taxes and undistributed earnings of subsidiaries......................... 443 (37,790) (27,797) -- (65,144) Provision (benefit) for income taxes................................ -- (12,715) (751) -- (13,466) --------- --------- --------- -------- --------- Income (loss) from continuing operations, before cumulative effect of a change in accounting principle and undistributed earnings of subsidiaries......................... 443 (25,075) (27,046) -- (51,678) Equity in undistributed earnings of subsidiaries......................... (172,021) (146,946) -- 318,967 -- --------- --------- --------- -------- --------- Income from continuing operations before cumulative effect of a change in accounting principle.............. (171,578) (172,021) (27,046) 318,967 (51,678) Loss from discontinued operations..... -- -- 8,152 -- 8,152 Cumulative effect of a change in accounting principle................. -- -- 111,748 -- 111,748 --------- --------- --------- -------- --------- Net income (loss)..................... $(171,578) $(172,021) $(146,946) $318,967 $(171,578) ========= ========= ========= ======== =========
18 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) June 30, 2003 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED --------- --------- ------------ ------------ Cash flows from (used in) operating activities..................................... $ -- $ (17,035) $ 37,194 $ 20,159 Cash flows from investing activities: Capital expenditures.......................... -- (976) (12,034) (13,010) Proceeds from divestitures, net............... -- 3,864 -- 3,864 Intercompany advances......................... (16) 25,257 (25,241) -- Proceeds from the sale of assets.............. -- -- 627 627 --------- --------- -------- --------- Net cash provided by (used in) investing activities................................... (16) 28,145 (36,648) (8,519) Cash flows from financing activities: Proceeds from the issuance of common stock.... 16 -- -- 16 Proceeds from long-term debt.................. -- 947,205 -- 947,205 Repayments of long-term debt.................. -- (960,176) (771) (960,947) Capitalized loan fees......................... -- (437) -- (437) --------- --------- -------- --------- Net cash provided by (used in) financing activities................................... 16 (13,408) (771) 14,163 Effect of exchange rate changes on cash......... -- -- 619 619 --------- --------- -------- --------- Net change in cash and cash equivalents......... -- (2,298) 394 (1,904) Balance at beginning of year.................... -- 1,957 693 2,650 --------- --------- -------- --------- Balance at end of year.......................... $ -- $ (341) $ 1,087 $ 746 ========= ========= ======== =========
19 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED) CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) June 30, 2002 (in thousands)
COMBINED PARENT GUARANTOR GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED --------- --------- ------------ -------- ------------ Cash flows from operating activities... $(18) $ (12,105) $ 111,513 $(85,039) $ 14,351 Cash flows from investing activities: Acquisition costs, net of cash acquired............................ -- (1,021) -- -- (1,021) Capital expenditures................. -- (1,814) (19,595) -- (21,409) Proceeds from divestitures, net...... -- 96,887 -- -- 96,887 Proceeds from sale of property, plant & equipment......................... -- 5,940 113 -- 6,053 ---- --------- --------- -------- --------- Net cash provided by (used in) investing activities................ -- 99,992 (19,482) -- 80,510 Cash flows from financing activities: Proceeds from issuance of common stock............................... 18 -- -- -- 18 Proceeds from issuance of long-term debt................................ -- 706,288 -- -- 706,228 Repayments of long-term debt......... -- (612,629) (101,524) 85,039 (629,114) Capitalized loan fees................ -- (16,574) -- -- (16,574) ---- --------- --------- -------- --------- Net cash provided by (used in) financing activities................ -- 77,085 (101,524) 85,039 60,618 Effect of exchange rate changes on cash and cash equivalents.................. -- -- (129) -- (129) Cash flows from discontinued operations............................ -- -- (8,550) -- (8,550) ---- --------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents...................... -- 164,972 (18,172) -- 146,800 Cash and cash equivalents at beginning of year............................... -- (18,004) 18,898 -- 894 ---- --------- --------- -------- --------- Cash and cash equivalents at end of year.................................. $ -- $ 146,968 $ 726 $ -- $ 147,694 ==== ========= ========= ======== =========
20 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, which includes a wide range of premium printed products such as annual reports, car brochures and brand marketing collateral, for national and regional customers, 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 segment operates 11 manufacturing plants strategically located throughout the United States. We have 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 printing 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, the filing products division of our Envelope segment and certain of the digital graphics operations of our Commercial Printing segment. * The restructuring of our debt. 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 approximately 10% in the fourth quarter of 2002. Prices of coated papers, which are used principally in commercial printing, did not increase in 2002 and have remained flat in 2003. 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, however, has impacted the operating margins of our Envelope segment. 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 as paper prices increase. We are experiencing this in 2003 since we have been unable to increase the prices of our envelope products sufficiently to cover the higher cost of uncoated papers. 21 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 these 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 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 completed our restructuring programs, we believe that this analysis provides the most meaningful basis for an understanding of our results during the second quarter and first six months of 2003. Demand for many of our products especially printed advertising and direct mail promotions remain depressed and the market for traditional business forms continues to decline. This has led to overcapacity in our industry and significant competitive pricing pressures. We do not expect internal growth or increases in margins until the markets we serve, especially advertising and direct mail, recover. Effective October 2003, Congress has instituted a federal "Do Not Call" program, which our industry believes will increase demand for printed advertising and direct mail as our customers shift promotional spending from telemarketing to direct mail to reach their prospective customers. Our efforts over the past 18 months in restructuring, and our focus this year on Total Customer Solutions and Mobilization have enabled us to mitigate the impact of the downturn in our markets and to benefit from improvements in our markets, should they occur. Total Customer Solutions is our strategic focus to align the capabilities of our three operating segments to better service the needs of customers who purchase a variety of the products and services we provide. Mobilization is our initiative to actively involve all of our employees in improving service, quality, efficiency and innovation. We believe all of these factors, both external and internal, may improve our business during the remainder of 2003 and in 2004. NET SALES
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- ----------------------- 2003 2002 2003 2002 -------- -------- -------- -------- (IN THOUSANDS) Ongoing................................... $407,826 $399,739 $832,274 $821,158 Filing products division............. -- 17,483 -- 36,009 Digital graphics operations.......... -- 3,745 2,872 7,282 -------- -------- -------- -------- Reported.................................. $407,826 $420,967 $835,146 $864,449 ======== ======== ======== ========
Reported sales in the second quarter of 2003 were $13.1 million, or 3.1%, lower than in the second quarter of 2002 and during the six months ended June 30, 2003 were $29.3 million, or 3.4%, lower than during the comparable period of 2002. Excluding the sales of the filing products division sold in August 2002 and the digital graphics operations that were sold in March 2003, sales of our ongoing operations increased $8.1 million, or 2.0%, in the second quarter of 2003 and $11.1 million, or 1.4%, during the six months ended June 30, 2003 from the comparable periods of 2002. Significant factors influencing the ongoing sales of our business segments during the first half of 2003 were as follows: * Envelope sales were $6.9 million lower in the second quarter of 2003 compared to the second quarter of 2002. On a year to date basis, Envelope sales were $10.2 million lower than the 22 comparable period of 2002. Approximately 71% of this revenue decline in the second quarter was due to a decline in units shipped and the remaining 29% was due to lower average selling prices. On a year to date basis volume made up approximately 57% of the decline and lower average selling prices accounted for approximately 43%. We believe the price competition we are experiencing is due to significant overcapacity in this industry. Our volume decline in the second quarter was the result of our decision not to reduce prices sufficiently to retain certain low margin business and lower demand by our customers. * Sales of the Commercial Printing segment were $16.7 million higher in the second quarter of 2003 and $24.5 million higher during the six months ended June 30, 2003 than the comparable periods of 2002. These increases were primarily due to the acquisition completed in August 2002, which contributed sales of $20.8 million during the second quarter and $30.0 million on a year to date basis which was partially offset by the loss of sales resulting from by the closure of our operation in New York City. * Sales of Printed Office Products decreased $1.7 million in the second quarter of 2003 and $3.2 million on a year to date basis from the comparable periods of 2002 primarily due to lower sales of multi-ply traditional business forms and competitive pricing pressures. RESTRUCTURING EXPENSES As mentioned earlier, we have completed the restructuring programs initiated in June 2001 which continued during 2002. We continually evaluate opportunities to improve our operations. It is possible that we will incur additional charges in the future should improvement opportunities require restructuring plans that are approved and implemented. Restructuring expenses recorded during the six months ended June 30, 2003 were $0.8 million, all of which related to restructuring programs initiated prior to 2003.
PRINTED COMMERCIAL OFFICE PRINTING PRODUCTS TOTAL ---------- -------- ----- (IN THOUSANDS) Employee separation and related expenses.................... $ 43 $(140) $(97) Equipment moves............................................. 865 -- 865 Other exit costs............................................ 92 (56) 36 ------ ----- ---- Total................................................... $1,000 $(196) $804 ====== ===== ====
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 to St. Louis and Baltimore. A substantial portion of the cost to dismantle, move and reinstall this equipment was incurred during the first six months of 2003. The other restructuring charges incurred 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 expenses paid as a result of this consolidation were less than originally estimated as were other costs. 23 OPERATING INCOME (LOSS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- ---------------------- 2003 2002 2003 2002 ------- -------- ------- -------- (IN THOUSANDS) Ongoing...................................... $15,744 $ 7,461 $35,540 $ 24,573 Impairment loss on assets held for sale................................... -- 1,815 167 4,039 Restructuring, impairments and other charges................................ (119) (37,269) (804) (59,541) ------- -------- ------- -------- Reported..................................... $15,625 $(27,993) $34,903 $(30,929) ======= ======== ======= ========
Excluding the operating income of the filing products division and digital graphics operations that have been sold and charges related to our restructuring, impairments and other charges recorded in 2002, ongoing operating income increased $8.3 million in the second quarter of 2003 and $11.0 million on a year to date basis over operating income in the comparable periods of 2002. * Operating income of our Envelope segment for the second quarter and on a year to date basis was $4.0 million below results in 2002. This was due to primarily to lower volume and lower margins. * Commercial Printing's ongoing operating income improved $9.6 million in the second quarter of 2003 and on a year to date basis $15.1 million over the losses recorded in the second quarter and first six months of 2002. The improvement in operating income was attributable primarily to the results of the acquisition completed in August 2002, operating improvements made during 2002 and savings that have resulted from the restructuring actions taken during the second half of 2002. * The ongoing operating income of Printed Office Products for the second quarter of 2003 was $0.6 million lower than the second quarter of 2002 and on a year to date basis was $1.3 million lower than 2002. This decline reflects lower sales partially offset by savings from the plant consolidations during 2002. * Expenses associated with corporate services decreased $3.3 million in the second quarter of 2003 and $1.2 million on a year to date basis over the comparable periods of 2002. Lower corporate expenses in the first half of 2003 were the result of a reduction in workers' compensation expense of $4.4 million partially offset by lower supplier rebates and higher spending on employee safety programs and employee training. INTEREST EXPENSE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------- --------------------- 2003 2002 2003 2002 ------- ------- ------- ------- (IN THOUSANDS) Total interest expense........................ $18,119 $20,966 $36,333 $39,448 Less: Allocated to discontinued operations.... -- (1,993) -- (5,570) ------- ------- ------- ------- Reported interest expense..................... $18,119 $18,973 $36,333 $33,878 ======= ======= ======= =======
Interest expense incurred during the second quarter of 2003 reflects our average outstanding debt during the quarter of $801.9 million and a weighted average interest rate of 8.36% compared to the average outstanding debt of $943.2 during the second quarter of 2002 and a weighted average interest rate of 8.08%. Interest expense incurred during the six months ended June 30, 2003 reflects average outstanding debt of $807.5 million and a weighted average interest rate of 8.35% compared to the average outstanding debt of $945.0 during the first six months of 2002 and a weighted average interest rate of 7.48%. The average outstanding debt has decreased year over year due primarily to the application of the proceeds from our divestitures to the repayment of debt. Our weighted average interest increased in 2003 as a result of the issuance of $350 million of 9 5/8% senior notes on March 13, 24 2002 the proceeds of which were used primarily to repay bank debt that accrued interest at a lower variable rate, and in November 2002, our 5% convertible subordinated notes were redeemed. In addition, total interest expense has been reduced in 2003 from amounts recorded in 2002 as a result of the write-off of the deferred financing costs associated with the bank credit facility that was refinanced in June 2002. Reported interest expense for the six months ended June 30, 2003 was higher than in the first half of 2002 due to 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
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------- ---------------------- 2003 2002 2003 2002 ------- ------- ------- -------- (DOLLARS IN THOUSANDS) Income tax benefit............................ $(1,168) $(8,942) $ (767) $(13,466) Effective tax rate............................ 41% 19% 40% 21%
The effective tax rate for 2003 is estimated to be 40%. The effective tax rate for 2002 was lower than 2003 primarily due to a higher estimated pre-tax loss in 2002 that increased the impact of nondeductible permanent differences on the overall effective rate. LOSS FROM CONTINUING OPERATIONS AND LOSS PER SHARE--DILUTED
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- ---------------------- 2003 2002 2003 2002 ------- -------- ------- -------- (DOLLARS IN THOUSANDS) Loss from continuing operations.............. $(1,681) $(38,069) $(1,150) $(51,678) Loss from continuing operations per share.... $ (0.04) $ (0.80) $ (0.02) $ (1.08)
The loss from continuing operations in the second quarter of 2003 was $36.4 million less than the second quarter of 2002 and was $50.5 million less on a year to date basis than the first six months of 2002. This improvement is due to the acquisition completed in August 2002, improved operating performance, lower overhead, and significantly lower restructuring and other charges. Interest expense was higher in the first six months of 2003 than in 2002. The low effective tax rate in 2002 reduced the tax benefit of the losses in 2002 compared to the benefit in 2003. In addition, the loss on the early extinguishment of debt recorded as an extraordinary item in the three and six months ended June 30, 2002, $8.7 million and $16.5 million, respectively, 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 gain was reduced by $0.6 million in the second quarter based on the completion of the tax return. 25 CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE We adopted Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 ("Interpretation 46") effective January 1, 2003. The implementation of Interpretation 46 required the Company to consolidate a trust that is leasing equipment to the Company under an operating lease. The effect of this consolidation was to increase net property, plant and equipment by $18.1 million and total debt by $18.5 million on January 1, 2003. The cumulative effect of this change in accounting principle was an after-tax charge of $0.3 million. NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE--DILUTED
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- --------------------- 2003 2002 2003 2002 ------- -------- ----- --------- (DOLLARS IN THOUSANDS) Net income (loss)............................. $(2,262) $(38,222) $ 447 $(171,578) Net income (loss) per share................... $ (0.05) $ (0.80) $0.01 $ (3.60)
The net income (loss) and net income (loss) loss per share in the second quarter of 2003 and on a year to date basis reflect the reduction in income (loss) from continuing operations, the loss (gain) recorded on the disposal of discontinued operations and the cumulative effect of a change in accounting principle. The net loss and net loss per share reported in the second quarter of 2002 and for the six months ended June 30, 2002 reflected the loss from continuing operations, losses of $0.2 million in the quarter and $8.2 million for the six months ended June 30, 2002 on disposal of discontinued operations and the $111.7 goodwill impairment charge recorded as a cumulative effect of a change in accounting principle as a result of the adoption of SFAS No. 142, Goodwill and Other Intangible Assets. BUSINESS SEGMENTS ENVELOPE SALES
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- ----------------------- 2003 2002 2003 2002 -------- -------- -------- -------- (IN THOUSANDS) Ongoing................................... $170,831 $177,685 $349,902 $360,134 Filing products division.............. -- 17,483 -- 36,009 -------- -------- -------- -------- Reported.................................. $170,831 $195,168 $349,902 $396,143 ======== ======== ======== ========
OPERATING INCOME
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------- ---------------------- 2003 2002 2003 2002 ------- ------- ------- -------- (IN THOUSANDS) Ongoing....................................... $13,897 $17,866 $31,892 $ 35,884 Filing products division.................. -- 1,132 -- 2,540 Restructuring expenses.................... -- (7,545) -- (19,559) ------- ------- ------- -------- Reported...................................... $13,897 $11,453 $31,892 $ 18,865 ======= ======= ======= ========
Reported sales of the Envelope segment were $170.8 million in the second quarter of 2003, $24.3 million below sales in the second quarter of 2002. Excluding sales of the filing products division, which was sold in August 2002, the sales decline was $6.9 million, or 3.9%. Excluding the impact of the 26 foreign currency benefit from the strength of the Canadian dollar, the sales decline was $10.2 million and due primarily to the following: * Domestic sales of our direct mail and consumer direct envelopes were down approximately $7.3 million, or 8.3%, in the second quarter. Approximately 71% of this decline was related to volume and 29% related to lower pricing. The decline in volume was due to lower demand by our customers for transactional envelopes, lower sales to direct mail customers and volume lost due to competitive pricing. Our average selling price decreased due to competitive pricing pressures and lower sales of higher value added products. * Sales into the resale segment of the market decreased approximately $1.4 million, or 3.7%, due almost entirely to competitive pricing pressures. Unit sales into this market segment decreased only slightly in the quarter. * Excluding the impact of foreign currency, sales in Canada decreased approximately $0.8 million, or 2.5%, entirely due to competitive pricing pressures. Unit sales in Canada were higher during the second quarter than in the second quarter of 2002. Reported operating income of the Envelope segment in the second quarter of 2003 was $13.9 million, $2.4 million higher than the second quarter of 2002. Excluding the operating income of the filing products division and restructuring expenses, operating income was $4.0 million lower than the second quarter of 2002. The impact of lower pricing was approximately $5.0 million and the impact of the decline in volume was approximately $2.3 million. Manufacturing overhead and selling and administrative expenses were reduced by approximately $2.6 million from the second quarter of 2002. The foreign currency translation benefit to operating income was $0.7 million. Reported sales were $349.9 million for the six months ended June 30, 2003, $46.2 million below sales during the comparable period of 2002. Excluding sales of the filing products division, the sales decline was $10.2 million, or 2.8%. Excluding the impact of the foreign currency benefit, the sales decline was $15.3 million and was due primarily to the following: * Domestic sales of our direct mail and consumer direct envelopes decreased approximately $11.6 million, or 6.4%. Lower volume contributed approximately 57.0% of this decline and lower average selling prices contributed the remaining 43.0%. * Sales into the resale segment of the market decreased approximately $0.6 million, or 1.0% due primarily to volume, which was lower in the first quarter than in the first quarter of 2002. Average selling prices were favorable enough in the first quarter to offset the lower pricing experienced in the second quarter. * Sales in Canada decreased approximately $1.3 million on a year-to-date basis due entirely to lower pricing. Units sold by our Canadian operations were slightly higher in the first six months of 2003 than during the comparable period of 2002. Reported operating income was $31.9 million for the six months ended June 30, 2003, $13.0 million higher than the comparable period of 2002. Excluding the operating income of the filing products division and restructuring expenses, operating income was $4.0 million lower than during the first six months of 2002. Lower average selling prices for our products reduced operating income by approximately $6.6 million. The impact of lower sales volume was approximately $4.9 million. Manufacturing overhead and selling and administrative expenses were reduced by approximately $6.4 million. The foreign currency translation benefit to operating income was $1.1 million. 27 COMMERCIAL PRINTING SALES
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ----------------------- ----------------------- 2003 2002 2003 2002 -------- -------- -------- -------- (IN THOUSANDS) Ongoing................................... $186,652 $169,982 $381,729 $357,200 Digital graphics operations........... -- 3,745 2,872 7,282 -------- -------- -------- -------- Reported.................................. $186,652 $173,727 $384,601 $364,482 ======== ======== ======== ========
OPERATING INCOME
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- ---------------------- 2003 2002 2003 2002 ------ ------- ------- -------- (IN THOUSANDS) Ongoing........................................ $2,869 $(6,723) $ 5,522 $ (9,574) Digital graphics operations................ -- 109 167 66 Restructuring expenses..................... (176) (1,448) (1,000) (2,455) ------ ------- ------- -------- Reported....................................... $2,693 $(8,062) $ 4,689 $(11,963) ====== ======= ======= ========
Reported sales of the Commercial Printing segment were $186.7 million in the second quarter of 2003, $12.9 million higher than sales in the second quarter of 2002. Excluding sales of the digital graphics operations, which were sold in March 2003, the sales increase was $16.7 million, or 9.8%. * Sales of our high-impact printing to our national and regional customers were $2.1 million higher than the second quarter of 2002. * Excluding sales of $20.8 million of the acquisition completed in August 2002, sales to our local commercial printing customers were approximately $2.3 million below the second quarter of 2002. Our unprofitable operation in New York City which was closed in September 2002 had sales of $3.9 million in the second quarter of 2002. Reported operating income of the Commercial Printing segment in the second quarter of 2003 was $2.7 million, an improvement of $10.8 million over the loss reported in the second quarter of 2002. Excluding the operating income of the digital graphics operations and restructuring expenses, operating income was $2.9 million, an improvement of $9.6 million from the second quarter of 2002. The improvement in ongoing operating income can be attributed to the results of the acquisition, the closure of the unprofitable operation in New York City and improvements resulting from the restructuring and other actions taken during 2002. Despite competitive pricing pressures, overall gross profit margin improved in the second quarter of 2003 by 1.9 percentage points. This was the result of productivity improvements and a reduction of $1.0 million in manufacturing overhead primarily due to the consolidation of our Indianapolis web operations. Selling and administrative costs were approximately $4.1 million lower in the second quarter of 2003 compared to the second quarter of 2002. Reported sales of the Commercial Printing segment were $384.6 million during the six months ended June 30, 2003, $20.1 million higher than sales during the comparable period of 2002. Excluding sales of the digital graphics operations, the sales increase was $24.5 million, or 6.7%. * Sales of our high-impact printing to our national and regional customers were $2.1 million lower than during the first six months of 2002. * Excluding $30.0 million of sales contributed by the acquisition, sales to our local commercial printing customers were approximately $4.5 million higher than sales in the first half of 2002 after excluding the $7.9 million of sales of the closed New York City operation. 28 Reported operating income of the Commercial Printing segment for the six months ended June 30, 2003 was $4.7 million, an improvement of $16.7 million over the loss reported in the comparable period of 2002. Excluding the operating income of the digital graphics operations and restructuring expenses, operating income was $5.5 million, an improvement of $15.1 million over the loss incurred in the first half of 2002. The improvement in ongoing operating income can be attributed to the acquisition, the closure of the unprofitable operation in New York City and improvements resulting from the restructuring and other actions taken during 2002. On a year-to-date basis, gross profit margins has been improved by 1.2 percentage points compared to the first half of 2002 due to improved operating efficiencies and reductions of $2.4 million in manufacturing overhead. Sales and administrative expenses are $6.1 million lower in the six months ended June 30, 2003 than in the comparable period of 2002. PRINTED OFFICE PRODUCTS SALES
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------- ----------------------- 2003 2002 2003 2002 ------- ------- -------- -------- (IN THOUSANDS) Reported.................................... $50,343 $52,072 $100,643 $103,824 ======= ======= ======== ========
OPERATING INCOME
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------- -------------------- 2003 2002 2003 2002 ------ ------ ------ ------- (IN THOUSANDS) Ongoing........................................... $4,715 $5,282 $8,427 $ 9,722 Restructuring expenses........................ 57 (168) 197 (1,047) ------ ------ ------ ------- Reported.......................................... $4,772 $5,114 $8,624 $ 8,675 ====== ====== ====== =======
Sales of Printed Office Products were $1.7 million lower in the second quarter of 2003 and $3.2 million lower in the six months ended June 30, 2003 than the comparable periods of 2002. Sales of Printed Office Products have declined in 2003 due primarily to lower sales of multi-ply traditional business forms and competitive pricing pressures. We believe these sales declines are consistent with sales declines in the industry. Our specialty products are growing and sales of our label products during the first half of 2003 have been comparable to sales in 2002. Reported operating income of Printed Office Products was $4.8 million in the second quarter of 2003 and $8.6 million during the six months ended June 30, 2003, slightly lower than the comparable periods of 2002. Excluding restructuring expenses, operating income was $0.6 million lower in the second quarter and $1.3 million lower during the six months ended June 30, 2003 than the comparable periods of 2002. The decline in operating income was due to the decline in sales, and lower margins due to competitive pressures, which were partially offset by reductions in fixed costs. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2003, our outstanding debt had increased $4.3 million to $768.1 million from the balance of $763.9 million at December 31, 2002 due to the implementation of Interpretation 46. At June 30, 2003 our outstanding debt included $17.8 million of debt held by a VIE that was consolidated on January 1, 2003. Our operations generated cash flow of $20.2 million and $14.4 million during the six months ended June 30, 2003 and June 30, 2002, respectively. At June 30, 2003 our revolving loan balance was $11.5 million lower than December 31, 2002. Capital expenditures were $13.0 million during the six months ended June 30, 2003 compared to $21.4 million in the same period of 2002. 29 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 June 30, 2003 by year:
TOTAL CASH LONG-TERM DEBT OPERATING LEASES OBLIGATIONS -------------- ---------------- ----------- Year 1..................... $ 2,819 $ 31,172 $ 33,991 Year 2..................... 93,233 26,900 120,133 Year 3..................... 2,400 22,436 24,836 Year 4..................... 2,353 17,701 20,054 Year 5..................... 12,796 12,910 25,706 Thereafter................. 654,463 19,518 673,981 -------- -------- ----------- Total...................... $768,064 $130,637 $ 898,701 ======== ======== ===========
At June 30, 2003, we had outstanding letters of credit of approximately $22.8 million related to performance and payment guarantees. In addition, we have issued letters of credit of $1.9 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 June 30, 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 June 30, 2003, we had $123.2 million of unused credit available under this credit facility. SEASONALITY AND ENVIRONMENT Our Commercial Printing segment 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 segment 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. 30 NEW ACCOUNTING STANDARDS In April 2003 the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, and should be applied prospectively, with the exception of certain SFAS No. 133 implementation issues that were effective for all fiscal quarters prior to June 15, 2003. Any such implementation issues should continue to be applied in accordance with their respective effective dates. This statement does not impact the financial statements of the Company. In May 2003 the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This statement does not impact the financial statements of the Company. AVAILABLE INFORMATION Our Internet address is: www.mail-well.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 31 * The success of certain strategic initiatives, including "Total Customer Solutions" 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 * 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. 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 June 30, 2003, we had variable rate debt outstanding of $110.0 million. A 1% increase in LIBOR on the maximum amount of debt subject to variable interest rates, which is $319.6 million, would increase our interest expense by $3.2 million and reduce our net income by approximately $1.9 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. 32 PART II OTHER INFORMATION ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS On May 1, 2003, the Company held its Annual Meeting of Stockholders, at which the following matters were voted upon: ELECTION OF DIRECTORS--The following individuals were elected or re-elected to the Board of Directors by the following vote:
NAME FOR WITHHOLD - ------------------------------------------- ---------- -------- Thomas E. Costello 41,242,227 328,630 Frank P. Diassi 41,188,561 382,296 Frank J. Hevrdejs 41,248,627 322,230 Martin J. Maloney 41,240,634 330,223 David M. Olivier 41,241,427 329,430 Janice C. Peters 41,197,945 372,912 Jerome W. Pickholz 41,248,927 321,930 Paul V. Reilly 41,092,971 477,886 Alister W. Reynolds 41,198,045 372,812 Susan Rheney 41,243,552 327,305
SELECTION OF AUDITORS--The selection of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending 2003 was ratified by the following vote: 41,142,233 For, 228,119 Against, 200,504 Abstentions. 33 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. 34 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 35 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.
36 (b) REPORTS ON FORM 8-K 1. Current report filed under Item 5 on Form 8-K dated as of May 13, 2003 in connection with the script of the company's investor conference call held on May 6, 2003. 2. Current report filed under Item 9 on Form 8-K dated as of May 6, 2003 in connection with certifications of the company's CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 37 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 July 31, 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) 38 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: July 31, 2003 /s/ PAUL V. REILLY --------------------------------------------- Chief Executive Officer 39 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: July 31, 2003 /s/ MICHEL P. SALBAING --------------------------------------------- Chief Financial Officer 40
EX-99.1 3 exh99p1.txt CERTIFICATION OF PERIODIC REPORT 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 June 30, 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: July 31, 2003 /s/ Paul V. Reilly ------------------------------- Paul V. Reilly Chairman, President and CEO EX-99.2 4 exh99p2.txt CERTIFICATION OF PERIODIC REPORT 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 June 30, 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: July 31, 2003 /s/ Michel P. Salbaing ------------------------------- Michel P. Salbaing Senior Vice President and CFO
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