-----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, HYAZRNPSbxItph2ZBB9MqLcTpxU6Gved0sqqcrZEMAgatWRoQDP8tNUmRYnE1ZTo YHV6geMTT1GedRvAkAFt8A== 0001068800-99-000360.txt : 19990817 0001068800-99-000360.hdr.sgml : 19990817 ACCESSION NUMBER: 0001068800-99-000360 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: SEC FILE NUMBER: 001-12551 FILM NUMBER: 99692883 BUSINESS ADDRESS: STREET 1: 23 INVERNESS WAY EAST STREET 2: STE 160 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037908023 MAIL ADDRESS: STREET 1: 23 INVERNESS WAY EAST STREET 2: SUITE 160 CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: MAIL WELL HOLDINGS INC DATE OF NAME CHANGE: 19940328 10-Q 1 MAIL-WELL, INC. FORM 10-Q ========================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 Commission file number 1-12551 MAIL-WELL, INC. ADDITIONAL AFFILIATE ISSUERS AND/OR GUARANTORS LISTED ON SCHEDULE ATTACHED HERETO (Exact name of Registrant as specified in its charter.) COLORADO 84-1250533 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 23 Inverness Way East, Suite 160, Englewood, CO 80112 (Address of principal executive offices) (Zip Code) 303-790-8023 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECKMARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes /X/ No / / As of August 6, 1999, the Registrant had 48,976,185 shares of Common Stock, $0.01 par value, outstanding. ========================================================================= SCHEDULE OF ADDITIONAL AFFILIATE ISSUERS AND/OR GUARANTORS
Exact Name of Guarantor Primary Standard I.R.S. Employer Registrants as Specified in State of Industrial Identification Their Respective Charters Formation Classification Number Number ------------------------- --------- --------------------- --------------- Mail-Well I Corporation Delaware 2677 84-1250534 Graphics Arts Center, Inc. Delaware 2752 93-1008554 Mail-Well Commercial Printing, Inc. Delaware 2752 84-1461875 Mail-Well Canada Holdings, Inc. Delaware 6719 84-1313090 Mail-Well Label Holdings, Inc. Colorado 6719 84-1449291 Mail-Well Label USA, Inc. Colorado 2752 84-1449292 Mail-Well West, Inc. Delaware 2677 84-1313079 Mail-Well I Corporation Colorado 2677 84-1250533 Murray Envelope Holdings, Inc. Colorado 6719 84-1421627 Murray Envelope Corporation Mississippi 2677 64-0271038 N-M Envelope, Inc. Mississippi 2677 64-0840384 National Graphics Company Colorado 2761 84-0692676 Poser Business Forms, Inc. Delaware 2761 75-2195786 Wisco II, L.L.C. Delaware 2677 84-1313080 Wisco Envelope Corp. Tennessee 2677 62-1555311
2 MAIL-WELL, INC. AND SUBSIDIARIES TABLE OF CONTENTS - ----------------------------------------------------------------------------- PAGE ---- Part I - FINANCIAL INFORMATION Item 1. Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3. Quantitative and Qualitative Disclosures About Market Risk 29 Part II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securities Holders 30 Item 6. Exhibits and Reports on Form 8-K 30 Signature Page 33 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, 1999 DECEMBER 31, 1998 ------------- ----------------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $ 10,597 $ 1,375 Receivables, net 154,970 130,523 Investment in accounts receivable securitization 3,925 47,069 Accounts receivable -- other 13,816 12,686 Income tax receivable 2,912 10,715 Inventories, net 138,685 114,131 Other current assets 21,383 19,351 ---------- ---------- Total current assets 346,288 335,850 PROPERTY, PLANT AND EQUIPMENT, NET 505,961 437,732 GOODWILL, NET 421,091 322,149 OTHER ASSETS, NET 28,075 32,225 ---------- ---------- TOTAL $1,301,415 $1,127,956 ========== ========== CURRENT LIABILITIES Accounts payable $ 114,995 $ 87,023 Accrued compensation and vacation 48,642 41,401 Other current liabilities 46,672 47,192 Current portion of long-term debt and capital leases 9,338 8,036 ---------- ---------- Total current liabilities 219,647 183,652 LONG-TERM DEBT AND CAPITAL LEASES 673,225 583,427 DEFERRED INCOME TAXES 55,265 47,534 OTHER LONG-TERM LIABILITIES 12,495 10,468 ---------- ---------- Total liabilities 960,632 825,081 MINORITY INTEREST IN NON VOTING STOCK OF SUBSIDIARY 3,500 3,500 SHAREHOLDERS' EQUITY Preferred stock, $0.01 par value; 25,000 shares authorized, none issued and outstanding - - Common stock, $0.01 par value; 100,000,000 shares authorized, 48,996,224 and 48,846,904 shares issued and outstanding, respectively (including 3,896,544 shares held by ESOP) 490 488 Paid-in capital 217,919 217,218 Retained earnings 120,496 90,740 Accumulated other comprehensive income (loss) (1,622) (9,071) ---------- ---------- Total shareholders' equity 337,283 299,375 ---------- ---------- TOTAL $1,301,415 $1,127,956 ========== ========== See notes to unaudited consolidated financial statements.
4 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, JUNE 30, -------- -------- 1999 1998 1999 1998 ---- ---- ---- ---- NET SALES $439,046 $350,059 $879,463 $668,793 COST OF SALES 331,704 279,632 672,456 529,319 -------- -------- -------- -------- GROSS PROFIT 107,342 70,427 207,007 139,474 OTHER OPERATING COSTS Selling, administrative and other 68,425 44,789 130,462 88,059 Merger costs - 771 - 3,002 -------- -------- -------- -------- Total other operating costs 68,425 45,560 130,462 91,061 -------- -------- -------- -------- OPERATING INCOME 38,917 24,867 76,545 48,413 OTHER (INCOME) EXPENSE Interest expense 14,049 7,763 26,816 15,153 Other (income) expense (528) (482) (704) (1,085) -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 25,396 17,586 50,433 34,345 PROVISION FOR INCOME TAXES 10,412 6,287 20,677 13,513 -------- -------- -------- -------- NET INCOME $ 14,984 $ 11,299 $ 29,756 $ 20,832 ======== ======== ======== ======== EARNINGS PER SHARE - BASIC $ 0.31 $ 0.24 $ 0.61 $ 0.46 EARNINGS PER SHARE - DILUTED $ 0.28 $ 0.22 $ 0.56 $ 0.42 WEIGHTED AVERAGE SHARES - BASIC 48,967 46,790 48,915 45,155 WEIGHTED AVERAGE SHARES - DILUTED 58,350 56,786 58,300 55,245 See notes to unaudited consolidated financial statements.
5 MAIL-WELL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED ---------------- JUNE 30, -------- 1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 29,756 $ 20,832 Adjustments to reconcile net income to cash provided by operations Depreciation and amortization 27,298 18,606 Deferred income taxes 5,790 3,172 Other 2,317 1,429 Changes in operating assets and liabilities, net of effects of acquired businesses: Receivables 8,932 (2,211) Inventories (11,797) (2,686) Accounts payable 3,412 (5,893) All other assets and other liabilities 8,942 (8,303) --------- --------- Net cash provided by operating activities 74,650 24,946 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired (162,569) (254,623) Capital expenditures (39,693) (31,255) Other investing activities 1,584 690 --------- --------- Net cash used in investing activities (200,678) (285,188) CASH FLOWS FROM FINANCING ACTIVITIES Changes in accounts receivable securitization, net 43,222 6,945 Net proceeds from common stock issuance 703 92,268 Proceeds from long-term debt 241,805 337,130 Repayments of long-term debt and capital leases (149,504) (186,092) Other financing activities (972) (3,658) --------- --------- Net cash provided by financing activities 135,254 246,593 EFFECT OF EXCHANGE RATE CHANGES ON CASH (4) (2,301) --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 9,222 (15,950) BALANCE AT BEGINNING OF PERIOD 1,375 40,911 --------- --------- BALANCE AT END OF PERIOD $ 10,597 $ 24,961 ========= ========= See notes to unaudited consolidated financial statements.
6 MAIL-WELL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS -- Mail-Well, Inc. and subsidiaries (collectively referred to as the "Company") is one of the largest printers in North America. The Company is a leading commercial printer in the United States and prints and manufactures envelopes in the United States and Canada. The Company is also a printer of custom business documents for the distributor market and a printer of labels for the food and beverage industry. PRINCIPLES OF CONSOLIDATION -- The Company, headquartered in Englewood, Colorado, is organized under Colorado law and its common stock is traded on the New York Stock Exchange (ticker: MWL). These financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. INTERIM FINANCIAL INFORMATION -- The interim financial information contained herein is unaudited and includes all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the information set forth. The consolidated financial statements should be read in conjunction with the Notes to the Consolidated Financial Statements, which are included in the Company's Form 10-K. The results for interim periods are not necessarily indicative of results to be expected for the Company's fiscal year ending December 31, 1999. INVENTORIES -- Detail of inventories, in thousands:
JUNE 30, 1999 DECEMBER 31, 1998 ------------- ----------------- Raw materials $ 53,857 $ 45,720 Work in process 28,977 22,089 Finished goods 61,313 49,256 Reserve for obsolescence, loss and other (5,462) (2,934) -------- -------- $138,685 $114,131 ======== ========
SHAREHOLDERS' EQUITY -- The change in Common Stock and Paid-in Capital is caused by the exercise of stock options. The change in Retained Earnings is net income. See "Other Comprehensive Income" for an explanation of the change in those accounts. OTHER COMPREHENSIVE INCOME -- Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", was adopted January 1, 1998. This statement requires reporting of changes in shareholders' equity that do not result directly from transactions with shareholders. A summary of comprehensive income follows:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 ------------- ------------- ------------- ------------- (in thousands) Net income $ 14,984 $ 11,299 $ 29,756 $ 20,832 Currency translation adjustments, net 3,704 (2,044) 7,231 (1,742) Unrealized loss on investments, net 184 169 218 37 -------- -------- -------- -------- Comprehensive income $ 18,872 $ 9,424 $ 37,205 $ 19,127 ======== ======== ======== ========
EARNINGS PER SHARE -- In June 1998 the Company's common stock split 2:1; all share and per share information has been retroactively restated to reflect these splits. The unallocated shares issued under the Employee Stock Ownership Plan are excluded from both the basic and diluted earnings per share calculations. 7
INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FOR THE THREE MONTHS ENDED JUNE 30, 1999 EARNINGS PER SHARE - BASIC Income available to common shareholders $14,984 48,967 $0.31 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 1,160 Convertible Subordinated Notes 1,313 8,003 Other - 220 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $16,297 58,350 $0.28 ======= ====== ===== FOR THE THREE MONTHS ENDED JUNE 30, 1998 EARNINGS PER SHARE - BASIC Income available to common shareholders $11,299 46,790 $0.24 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 1,698 Convertible Subordinated Notes 1,083 8,003 Other - 295 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $12,382 56,786 $0.22 ======= ====== ===== FOR THE SIX MONTHS ENDED JUNE 30, 1999 EARNINGS PER SHARE - BASIC Income available to common shareholders $29,756 48,915 $0.61 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 1,162 Convertible Subordinated Notes 2,626 8,003 Other - 220 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $32,382 58,300 $0.56 ======= ====== ===== FOR THE SIX MONTHS ENDED JUNE 30, 1998 EARNINGS PER SHARE - BASIC Income available to common shareholders $20,832 45,155 $0.46 ===== EFFECT OF DILUTIVE SECURITIES Stock options - 1,817 Convertible Subordinated Notes 2,166 8,003 Other - 270 ------- ------ EARNINGS PER SHARE - DILUTED Income available to common shareholders including assumed conversions $22,998 55,245 $0.42 ======= ====== =====
NEW ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the "Statement"). The Statement, which will be effective beginning in the year 2001, requires derivative instruments to be recorded in the balance sheet at their fair value with changes in fair value being recognized in earnings unless specific hedging accounting criteria are met. The Company has minimal hedging and derivative activity, but it has not determined the impact of this statement on its operations and financial position. 8 In March 1998, the Accounting Standards Executive Committee of the AICPA issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". The SOP, which has been adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. Prior to the adoption of the SOP, the Company expensed all internal use software related internal costs as incurred. The effect of adopting the SOP was immaterial to the three and six months ended June 30, 1999 and is not expected to have a material impact on earnings going forward. RECLASSIFICATION -- Certain amounts in the 1998 financial statements have been reclassified to conform to the 1999 presentation. 2. MERGERS WITH COMMERCIAL PRINTING COMPANIES Effective May 30, 1998, the Company completed its mergers with seven commercial printing companies through the exchange of common stock, which had a market value of $21.965 per share, as shown in the table below:
SHARES OF MAIL-WELL OPERATING COMPANY NAME COMMON STOCK EXCHANGED ---------------------- ---------------------- Color Art, Inc. ("Color Art") 2,351,951 Accu-color, Inc. ("Accu-color") 622,391 Industrial Printing Company ("Industrial Printing") 570,161 IPC Graphics, Inc. ("IPC Graphics") 325,973 United Lithograph, Inc. ("United Lithograph") 519,568 French Bray, Inc. ("French Bray") 538,040 Clarke Printing, Co. ("Clarke Printing") 437,984
The consolidated financial statements give retroactive effect to the mergers, which have been accounted for using the pooling of interests method and, as a result, the financial position, results of operations and cash flows are presented as if the combining companies had been consolidated for all periods presented. The consolidated balance sheets reflect the accounts of the Company as if the additional common stock had been issued during all periods presented. The companies listed above are hereafter collectively referred to as the Pooled Companies. Each of the mergers was negotiated and consummated as separate transactions and the separate mergers were not contingent upon each other. Except for French Bray and Clarke Printing, all of the above entities had elected Subchapter S corporation treatment for U.S. federal income tax purposes and, accordingly, did not pay U.S. federal income taxes. Subsequent to May 30, 1998, these companies were included in Mail-Well's consolidated U.S. federal income tax return. In connection with the mergers, the Company also issued common stock to acquire the net assets (including the assumption of the debt associated with such assets) of certain related real estate ventures owned by shareholders of the commercial printing companies. The shares of the Company's common stock exchanged for real estate assets are included with the shares exchanged for the respective operating company in the table above. The results of operations and financial conditions of the real estate assets are reflected in the restated consolidated financial statements with significant intercompany transactions and balances eliminated. The mergers with the real estate entities have been accounted for as taxable business combinations and the recognizable tax benefits attributable to the increase in tax basis were allocated to additional paid-in capital. Each of the above transactions has been accounted for individually as a pooling of interests and, accordingly, the consolidated financial statements for the periods subsequent to February 24, 1994 (inception) have been restated to include the accounts of the Pooled Companies. Prior to the mergers, Industrial Printing's and IPC Graphics' fiscal year ended on September 30, United Lithograph's fiscal year ended on June 30 and French Bray's fiscal year ended on July 31. Accordingly, the accompanying financial statements include those financial statements of entities with 9 different fiscal years restated on a calendar year basis. Additionally, the accompanying consolidated financial statements reflect certain minor adjustments to conform the accounting policies of the Pooled Companies to the Company's. Net sales and net income of the separate companies for the periods preceding the mergers were as follows:
UNAUDITED UNAUDITED PRO FORMA NET PRO FORMA DILUTED NET INCOME NET INCOME EARNINGS SALES (LOSS) (LOSS) PER SHARE ----- ---------- ---------- --------- (THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER ENDED MARCH 31, 1998 Mail-Well, Inc. as previously reported $274,705 $9,510 $9,510 Color Art 18,199 (173) (481) Accu-Color 3,036 215 47 Industrial Printing 5,690 219 63 IPC Graphics 2,960 45 (19) United Lithograph 5,532 (91) (170) French Bray 5,756 (258) (258) Clarke Printing 2,856 66 66 -------- ------ ------ Pooled entities 44,029 23 (752) -------- ------ ------ $318,734 $9,533 $8,758 $0.18 ======== ====== ====== ===== Income (loss) includes aggregate merger expenses of the Pooled Companies totaling $2.2 million in the first quarter of 1998. These costs consist primarily of investment banking, legal and accounting fees. Unaudited pro forma net income reflects adjustments to net income to record an estimated provision for income taxes for each period presented assuming Color Art, Accu-color, Industrial Printing, IPC Graphics and United Lithograph were tax paying entities.
3. ACQUISITIONS On February 2, 1999, the Company acquired Colorhouse, Inc., a pre- press company located in Minneapolis, Minnesota, with approximate annual sales of $20.7 million. On February 4, 1999, the Company acquired Hill Graphics, a sheetfed commercial printer located in Houston, Texas, with approximate annual sales of $20.5 million. On May 29, 1999, the Company acquired Forman Lithograph, Inc., a commercial printer located in San Francisco, California, with approximate annual sales of $6.5 million. On June 1, 1999, the Company acquired Avon Behren Printing Company, a commercial printer located in San Antonio, Texas, with approximate annual sales of $4.5 million. On June 1, 1999, the Company also acquired Design Manufacturing, Inc., a pressure sensitive label company located in Wareham, Massachusetts, with approximate annual sales of $13 million. On March 17, 1999, the Company commenced a formal tender offer to purchase all of the shares of Porter Chadburn plc, a label manufacturing company based in England with a substantial portion of its operations in the United States, for a price of approximately $.63 per share (38.5 pence) in cash. The total purchase price, including the assumption of debt and transaction costs was approximately $101.5 million. Porter Chadburn earned $7.3 million (pre-tax) on sales of $125.5 million for its fiscal year ended March 27, 1999. (All U.S. dollar amounts are based upon an exchange rate for British pounds of $1.642). As of April 8, 1999, the Company gained control of Porter Chadburn through acceptances of its offers. Therefore, beginning with that date, the operations of Porter Chadburn have been consolidated in the operations of the Company. These acquisitions have been accounted for as purchases and, accordingly, the net purchase price of each acquisition was allocated to the various assets and liabilities according to their estimated fair values as of the date of 10 the respective purchase. The results of operations of each of the acquisitions have been included in the accompanying consolidated statements of operations from the date of the acquisition. Certain purchase agreements require the payment of additional consideration in the form of cash payments if specific operating performance criteria are met. Any subsequent payment will be allocated to goodwill. In addition, the purchase price allocation to inventory, property, plant and equipment and restructuring charges for closing certain plants for certain acquisitions have not been finalized. Therefore, the amount of goodwill could be adjusted within one year of the purchase. 4. LONG-TERM DEBT AND CAPITAL LEASES Long-term debt consists of the following (in thousands):
INTEREST RATE AT JUNE 30, 1999 JUNE 30, 1999 DECEMBER 31, 1998 ------------- ------------- ----------------- Bank Borrowings: Unsecured loan, due June 9, 2003 6.88 % $ 24,239 $ 25,461 Unsecured revolving loan facility, due March 31, 2003 6.00 % 187,000 93,000 Senior Subordinated Notes, due 2008 8.75 % 300,000 300,000 Convertible Subordinated Notes, due 2002 5.00 % 152,050 152,050 Other Various 19,274 20,952 -------- -------- 682,563 591,463 Less current maturities (9,338) (8,036) -------- -------- Long-term debt and capital leases $673,225 $583,427 ======== ========
5. RESTRUCTURING CHARGES In November 1998, the Company committed to implement a restructuring program affecting the Envelopes and Commercial Printing segments and recorded a pre-tax provision of $15,961,000, of which $11,699,000 represents non-cash charges for asset write-offs and impairments, primarily machinery and equipment. Impairment losses were calculated based on the excess of the carrying amount of the assets over the assets' fair values. The fair value of an asset is generally determined based on recent comparable sales and independent quotes from the used equipment market. The remaining $4,262,000 is for severance, other termination benefits and property exit costs, including noncancelable operating leases. These charges are a result of the regionalization of the Company's U.S. Envelopes operations and reorganization of the Company's Commercial Printing operations, primarily in the Northwest. The Company also incurred $499,000 and $998,000 in expenses for the three and six months ended June 30, 1999, respectively, relating to the relocation of personnel, equipment and inventory which under generally accepted accounting principles could not be accrued for as part of the Company's restructuring initiative. These costs are included in "Selling, administrative and other" in the consolidated statements of operations. Severance costs for the 616 personnel included in the restructuring provision resulted from regionalizing special manufacturing operations (490 personnel) and administrative functions (126 personnel) in various locations of the Company's U.S. operations. Approximately 374 personnel had been terminated as of June 30, 1999 and the remaining terminations are expected to be completed by December 31, 1999. The following table summarizes the costs associated with the restructuring program (in thousands):
ASSET SEVERANCE & PROPERTY WRITE-DOWNS RELATED COSTS EXIT COSTS TOTAL ----------- ------------- ---------- ----- Initial reserve $11,699 $2,907 $1,355 $15,961 Utilized in 1998 11,699 515 81 12,295 ------- ------ ------ ------- Balance 12/31/98 - 2,392 1,274 3,666 Utilized in 1999 - 925 388 1,313 ------- ------ ------ ------- Balance 6/30/99 $ - $1,467 $ 886 $ 2,353 ======= ====== ====== =======
11 6. COMMITMENT AND CONTINGENCIES The Company participated in a $100.0 million accounts receivable securitization agreement whereby it can sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable up to a maximum of $100.0 sold under this agreement. In July 1999, the Company closed out this securitization agreement and entered into a new accounts receivable securitization facility. See the "Interest Expense" discussion in Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operation. The Company is involved in various lawsuits incidental to its businesses. In management's opinion, it is not probable that an adverse determination against the Company relating to these suits would occur that would be material to the consolidated financial statements. In the case of administrative proceedings related to environmental matters involving governmental authorities, management does not believe that any imposition of monetary sanctions would be material to the Company's results of operations and financial position. 7. SEGMENT INFORMATION Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. Additionally, segment information for all periods has been restated to reflect the mergers of the Pooled Companies as discussed in Note 2. The Company's operating segments prepare separate financial information that is evaluated regularly by the Chief Operating Officer in assessing performance and deciding how to allocate resources. Corporate expenses include the costs of maintaining a corporate office. The Company does not allocate corporate overhead, interest (income) expense, amortization expense, gains and losses on disposal of assets or income taxes by segment in assessing performance. Operating segments of the Company are defined primarily by product line and consist of Commercial Printing, Envelopes, Printing for Distributors and Labels. The latter two segments were added via acquisitions in the first quarter of 1998. The Commercial Printing segment specializes in printing advertising literature, high-end catalogs, annual reports, calendars and other materials and provides a broad range of printing and graphic arts services primarily to the advertising industry. The Envelopes segment prints and manufactures envelopes designed to customer specifications. The Printing for Distributors segment prints a diverse line of custom products addressing the business documents needs of small and medium-sized end users. The Labels segment is a leading supplier of labels to the North American food and beverage markets and has operations in the United Kingdom. Early in 1999, the Company combined the High Impact Color Printing segment with the Commercial Printing segment under one organization, now called the Commercial Printing segment. In addition, Mail-Well Graphics was reclassified from Envelopes to Commercial Printing since the 1998 Form 10-K. Segment information for all periods has been restated to reflect these changes. Segment information as of and for the three and six months ended June 30, 1999 and 1998 is presented below: 12
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- NET SALES: Commercial Printing $ 165,860 $ 115,685 $349,659 $215,178 Envelopes 180,994 184,467 379,869 375,126 Printing for Distributors 39,066 28,602 71,942 53,159 Labels 53,126 21,305 77,993 25,330 ---------- ---------- -------- -------- Total $ 439,046 $ 350,059 $879,463 $668,793 ========== ========== ======== ======== OPERATING INCOME (LOSS): Commercial Printing $ 13,321 $ 4,776 $ 27,234 $ 10,529 Envelopes 23,619 19,869 48,736 41,353 Printing for Distributors 3,792 2,508 6,549 4,209 Labels 3,941 1,661 5,622 1,924 Corporate (5,756) (3,947) (11,596) (9,602) ---------- ---------- -------- -------- Total $ 38,917 $ 24,867 $ 76,545 $ 48,413 ========== ========== ======== ======== DEPRECIATION AND AMORTIZATION: Commercial Printing $ 5,516 $ 4,134 $ 10,592 $ 8,014 Envelopes 3,954 3,568 7,750 7,017 Printing for Distributors 665 606 1,196 851 Labels 1,736 972 2,859 1,133 Corporate 2,219 877 3,895 1,399 ---------- ---------- -------- -------- Total $ 14,090 $ 10,157 $ 26,292 $ 18,414 ========== ========== ======== ======== June 30, December 31, 1999 1998 ---- ---- IDENTIFIABLE ASSETS: Commercial Printing $ 558,971 $ 495,918 Envelopes 512,674 500,355 Printing for Distributors 122,152 98,610 Labels 215,780 93,188 Corporate (108,162) (60,115) ---------- ---------- Total assets $1,301,415 $1,127,956 ========== ==========
13 8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION In December 1998, Mail-Well I Corporation ("Issuer" or "MWI"), the Company's wholly-owned subsidiary, and the only direct subsidiary of the Company, issued $300.0 million aggregate principal amount of 8 3/4 % Senior Subordinated Notes ("Senior Notes") due in 2008 (see Note 4). The Senior Notes are guaranteed by all of the U.S. subsidiaries (the "Guarantor Subsidiaries") of MWI, all of which are wholly owned, and by Mail-Well, Inc. ("Parent Guarantor"). The guarantees are joint and several, full, complete and unconditional. There are no material restrictions on the ability of the Guarantor Subsidiaries to transfer funds to MWI in the form of cash dividends, loans or advances, other than ordinary legal restrictions under corporate law, fraudulent transfer and bankruptcy laws. The following condensed consolidating financial information illustrates the composition of the Parent Guarantor, Issuer, Guarantor Subsidiaries and non-guarantor subsidiaries. The Issuer, the Guarantor subsidiaries and the non-guarantor subsidiaries comprise all of the direct and indirect subsidiaries of the Parent Guarantor. Management has determined that separate complete financial statements would not provide additional material information that would be useful in assessing the financial composition of the Guarantor Subsidiaries. Investments in subsidiaries are accounted for under the equity method, wherein the investor company's share of earnings and income taxes applicable to the assumed distribution of such earnings are included in net income. In addition, investments increase in the amount of permanent contributions to subsidiaries and decrease in the amount of distributions from subsidiaries. The elimination entries eliminate the equity method investment in subsidiaries and the equity in earnings of subsidiaries, intercompany payables and receivables and other transactions between subsidiaries. 14 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Quarter Ended June 30, 1999 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ NET SALES $ - $88,080 $271,338 $79,628 $ - $439,046 COST OF SALES - 66,867 208,784 56,053 - 331,704 ------- ------- -------- ------- -------- -------- GROSS PROFIT - 21,213 62,554 23,575 - 107,342 OTHER OPERATING COSTS 43 16,176 37,932 14,274 - 68,425 ------- ------- -------- ------- -------- -------- OPERATING INCOME (LOSS) (43) 5,037 24,622 9,301 - 38,917 OTHER (INCOME) EXPENSE Interest expense 2,136 11,671 518 1,936 (2,212) 14,049 Other (income) expense (2,206) (30) (664) 160 2,212 (528) ------- ------- -------- ------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 27 (6,604) 24,768 7,205 - 25,396 PROVISION (BENEFIT) FOR INCOME TAXES - (2,706) 11,222 1,896 - 10,412 ------- ------- -------- ------- -------- -------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 27 (3,898) 13,546 5,309 - 14,984 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 14,957 18,855 5,309 - (39,121) - ------- ------- -------- ------- -------- -------- NET INCOME $14,984 $14,957 $ 18,855 $ 5,309 $(39,121) $ 14,984 ======= ======= ======== ======= ======== ========
15 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Quarter Ended June 30, 1998 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ NET SALES $ - $97,666 $214,154 $38,239 $ - $350,059 COST OF SALES - 79,105 173,026 27,501 - 279,632 ------- ------- -------- ------- -------- -------- GROSS PROFIT - 18,561 41,128 10,738 - 70,427 OTHER OPERATING COSTS Selling, administrative and other 283 14,637 24,739 5,130 - 44,789 Merger costs - - 771 - - 771 ------- ------- -------- ------- -------- -------- Total Other Operating Costs 283 14,637 25,510 5,130 - 45,560 ------- ------- -------- ------- -------- -------- OPERATING INCOME (LOSS) (283) 3,924 15,618 5,608 - 24,867 OTHER (INCOME) EXPENSE Interest expense 1,896 4,550 2,297 1,232 (2,212) 7,763 Other (income) expense (2,217) 111 (488) (100) 2,212 (482) ------- ------- -------- ------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 38 (737) 13,809 4,476 - 17,586 PROVISION FOR INCOME TAXES - (263) 4,839 1,711 - 6,287 ------- ------- -------- ------- -------- -------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 38 (474) 8,970 2,765 - 11,299 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 11,261 11,735 2,765 - (25,761) - ------- ------- -------- ------- -------- -------- NET INCOME $11,299 $11,261 $ 11,735 $ 2,765 $(25,761) $ 11,299 ======= ======= ======== ======= ======== ========
16 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Six-months Ended June 30, 1999 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ NET SALES $ - $189,275 $561,858 $128,330 $ - $879,463 COST OF SALES - 146,466 434,481 91,509 - 672,456 ------- ------- -------- -------- -------- -------- GROSS PROFIT - 42,809 127,377 36,821 - 207,007 OTHER OPERATING COSTS 111 32,556 77,375 20,420 - 130,462 ------- ------- -------- -------- -------- -------- OPERATING INCOME (LOSS) (111) 10,253 50,002 16,401 - 76,545 OTHER (INCOME) EXPENSE Interest expense 4,271 22,277 1,004 3,688 (4,424) 26,816 Other (income) expense (4,423) (444) (539) 278 4,424 (704) ------- ------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 41 (11,580) 49,537 12,435 - 50,433 PROVISION FOR INCOME TAXES - (4,746) 21,462 3,961 - 20,677 ------- ------- -------- -------- -------- -------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 41 (6,834) 28,075 8,474 - 29,756 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 29,715 36,549 8,474 - (74,738) - ------- ------- -------- -------- -------- -------- NET INCOME $29,756 $ 29,715 $ 36,549 $ 8,474 $(74,738) $ 29,756 ======= ======== ======== ======== ======== ========
17 CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS Six-months Ended June 30, 1998 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ NET SALES $ - $202,289 $397,797 $68,707 $ - $668,793 COST OF SALES - 162,151 317,762 49,406 - 529,319 ------- -------- -------- ------- -------- -------- GROSS PROFIT - 40,138 80,035 19,301 - 139,474 OTHER OPERATING COSTS Selling, administrative and other 566 30,873 47,579 9,041 - 88,059 Merger costs - - 3,002 - - 3,002 ------- -------- -------- ------- -------- -------- Total Other Operating Costs 566 30,873 50,581 9,041 - 91,061 ------- -------- -------- ------- -------- -------- OPERATING INCOME (LOSS) (566) 9,265 29,454 10,260 - 48,413 OTHER (INCOME) EXPENSE Interest expense 4,023 9,073 4,433 2,048 (4,424) 15,153 Other (income) expense (4,430) (82) (945) (52) 4,424 (1,085) ------- -------- -------- ------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES (159) 274 25,966 8,264 - 34,345 PROVISION FOR INCOME TAXES - 175 10,173 3,165 - 13,513 ------- -------- -------- ------- -------- -------- INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES (159) 99 15,793 5,099 - 20,832 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 20,991 20,892 5,099 - (46,982) - ------- -------- -------- ------- -------- -------- NET INCOME $20,832 $ 20,991 $ 20,892 $ 5,099 $(46,982) $ 20,832 ======= ======== ======== ======= ======== ========
18 CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION June 30, 1999 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ CURRENT ASSETS Cash and cash equivalents $ - $ 15,037 $(12,067) $ 7,627 $ - $ 10,597 Receivables, net - 19,120 89,671 46,179 - 154,970 Investment in accounts receivable Securitization - 690 3,235 - - 3,925 Accounts receivable - other - 4,305 6,161 3,350 - 13,816 Income tax receivable - 15,917 - 225 (13,230) 2,912 Inventories, net - 37,061 75,520 26,104 - 138,685 Note receivable from Issuer 147,436 - - - (147,436) - Other current assets 187 9,640 9,691 1,865 - 21,383 -------- ---------- -------- -------- ----------- ---------- Total current assets 147,623 101,770 172,211 85,350 (160,666) 346,288 INVESTMENT IN SUBSIDIARIES 339,312 810,548 183,459 - (1,333,319) - PROPERTY, PLANT AND EQUIPMENT, NET - 115,700 292,307 97,954 - 505,961 GOODWILL, NET - 51,369 256,362 113,360 - 421,091 OTHER ASSETS, NET 3,422 13,269 8,308 3,076 - 28,075 -------- ---------- -------- -------- ----------- ---------- TOTAL $490,357 $1,092,656 $912,647 $299,740 $(1,493,985) $1,301,415 ======== ========== ======== ======== =========== ========== CURRENT LIABILITIES Accounts payable $ - $ 17,348 $ 70,177 $ 27,470 $ - $114,995 Accrued compensation and vacation - 13,127 28,277 7,238 - 48,642 Other current liabilities 1,024 63,276 (42,576) 38,178 (13,230) 46,672 Note payable to Parent - 147,436 - - (147,436) - Current portion of long-term debt and capital leases - 5 3,969 5,364 - 9,338 -------- ---------- -------- -------- ----------- ---------- Total current liabilities 1,024 241,192 59,847 78,250 (160,666) 219,647 LONG-TERM DEBT AND CAPITAL LEASES 152,050 487,002 9,109 25,064 - 673,225 DEFERRED INCOME TAXES - 19,527 26,103 9,635 - 55,265 OTHER LONG-TERM LIABILITIES - 2,123 7,040 3,332 - 12,495 -------- ---------- -------- -------- ----------- ---------- Total liabilities 153,074 749,844 102,099 116,281 (160,666) 960,632 MINORITY INTEREST - 3,500 - - - 3,500 SHAREHOLDERS' EQUITY 337,283 339,312 810,548 183,459 (1,333,319) 337,283 -------- ---------- -------- -------- ----------- ---------- TOTAL $490,357 $1,092,656 $912,647 $299,740 $(1,493,985) $1,301,415 ======== ========== ======== ======== =========== ==========
19 CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION December 31, 1998 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ CURRENT ASSETS Cash and cash equivalents $ - $ 6,952 $ (7,311) $ 1,734 $ - $ 1,375 Receivables, net - 13,607 91,148 25,768 - 130,523 Investment in accounts receivable securitization - 6,114 40,955 - - 47,069 Accounts receivable - other - 3,981 7,593 1,112 - 12,686 Income tax receivable - 43,908 - - (33,193) 10,715 Inventories, net - 39,267 60,286 14,578 - 114,131 Note receivable from Issuer 147,436 - - - (147,436) - Other current assets 116 8,515 7,935 2,785 - 19,351 -------- -------- -------- -------- ----------- ---------- Total current assets 147,552 122,344 200,606 45,977 (180,629) 335,850 INVESTMENT IN SUBSIDIARIES 301,447 609,661 76,104 - (987,212) - PROPERTY, PLANT AND EQUIPMENT, NET - 121,733 249,002 66,997 - 437,732 GOODWILL, NET - 59,900 210,067 52,182 - 322,149 OTHER ASSETS, NET 3,902 13,111 15,155 57 - 32,225 -------- -------- -------- -------- ----------- ---------- TOTAL $452,901 $926,749 $750,934 $165,213 $(1,167,841) $1,127,956 ======== ======== ======== ======== =========== ========== CURRENT LIABILITIES Accounts payable $ - $ 18,171 $ 56,441 $ 12,411 $ - $ 87,023 Accrued compensation and vacation - 12,320 23,926 5,155 - 41,401 Other current liabilities 1,476 26,759 16,953 35,197 (33,193) 47,192 Note payable to Parent - 147,436 - - (147,436) - Current portion of long-term debt and capital leases - 5 2,796 5,235 - 8,036 -------- -------- -------- -------- ----------- ---------- Total current liabilities 1,476 204,691 100,116 57,998 (180,629) 183,652 LONG-TERM DEBT AND CAPITAL LEASES 152,050 393,004 15,415 22,958 - 583,427 DEFERRED INCOME TAXES - 19,890 20,078 7,566 - 47,534 OTHER LONG-TERM LIABILITIES - 4,217 5,664 587 - 10,468 -------- -------- -------- -------- ----------- ---------- Total liabilities 153,526 621,802 141,273 89,109 (180,629) 825,081 MINORITY INTEREST - 3,500 - - - 3,500 SHAREHOLDERS' EQUITY 299,375 301,447 609,661 76,104 (987,212) 299,375 -------- -------- -------- -------- ----------- ---------- TOTAL $452,901 $926,749 $750,934 $165,213 $(1,167,841) $1,127,956 ======== ======== ======== ======== =========== ==========
20 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS Six-months ended June 30, 1999 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ CASH FLOWS FROM OPERATING ACTIVITIES $ 4,251 $ 72,358 $ (8,941) $ 6,982 $ - $ 74,650 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired - - (73,548) (89,021) - (162,569) Capital expenditures - (4,971) (30,290) (4,432) - (39,693) Investment in subsidiaries - (158,313) (91,649) - 249,962 - Other investing activities (4,954) 1 4,898 936 703 1,584 ------- --------- --------- -------- --------- --------- Net cash used in investing activities (4,954) (163,283) (190,589) (92,517) 250,665 (200,678) CASH FLOWS FROM FINANCING ACTIVITIES Changes due to accounts receivable securitization, net - 5,434 37,788 - - 43,222 Net proceeds from common stock issuance 703 - - - - 703 Proceeds from long-term debt - 232,000 - 9,805 - 241,805 Repayments of long-term debt and capital lease obligations - (138,010) (1,472) (10,022) - (149,504) Investment by parent - 703 158,313 91,649 (250,665) - Other financing activities - (1,117) 145 - - (972) ------- --------- --------- -------- --------- --------- Net cash provided by financing activities 703 99,010 194,774 91,432 (250,665) 135,254 EFFECT OF EXCHANGE RATE CHANGES ON CASH - - - (4) - (4) ------- --------- --------- -------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS - 8,085 (4,756) 5,893 - 9,222 BALANCE AT BEGINNING OF YEAR - 6,952 (7,311) 1,734 - 1,375 ------- --------- --------- -------- --------- --------- BALANCE AT END OF YEAR $ - $ 15,037 $ (12,067) $ 7,627 $ - $ 10,597 ======= ========= ========= ======== ========= =========
21 CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS Six-months ended June 30, 1998 (in thousands)
Combined Combined Parent Guarantor Nonguarantor Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated --------- ------ ------------ ------------ ----- ------------ CASH FLOWS FROM OPERATING ACTIVITIES $ 1,094 $ (32,207) $ 8,759 $ 47,300 $ - $ 24,946 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition costs, net of cash acquired (90) (9,612) (211,004) (33,917) - (254,623) Capital expenditures - (9,549) (18,604) (3,102) - (31,255) Investment in subsidiaries (92,268) (282,421) (30,000) - 404,689 - Other investing activities (1,259) - 1,565 384 - 690 -------- --------- --------- --------- --------- --------- Net cash used in investing activities (93,617) (301,582) (258,043) (36,635) 404,689 (285,188) CASH FLOWS FROM FINANCING ACTIVITIES Changes due to accounts receivable securitization, net - 1,041 5,904 - - 6,945 Net proceeds from common stock issuance 92,268 - - - - 92,268 Proceeds from long-term debt - 210,000 213 126,917 - 337,130 Repayments of long-term debt and capital lease obligations - (43) (35,109) (150,940) - (186,092) Investment by parent - 92,268 282,421 30,000 (404,689) - Other financing activities - - (3,658) - - (3,658) -------- --------- --------- --------- --------- --------- Net cash provided by financing activities 92,268 303,266 249,771 5,977 (404,689) 246,593 EFFECT OF EXCHANGE RATE CHANGES ON CASH - - - (2,301) - (2,301) -------- --------- --------- --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS (255) (30,523) 487 14,341 - (15,950) BALANCE AT BEGINNING OF YEAR 256 41,483 (920) 92 - 40,911 -------- --------- --------- --------- --------- --------- BALANCE AT END OF YEAR $ 1 $ 10,960 $ (433) $ 14,433 $ - $ 24,961 ======== ========= ========= ========= ========= =========
22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The following should be read in conjunction with the consolidated historical financial statements and related notes of Mail-Well, Inc. and its subsidiaries (the "Company") included elsewhere in this report. In addition to the historical information contained herein, this report contains forward-looking statements. The reader of this information should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company's actual results could differ materially from those suggested by such forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to the following: * availability of acquisition opportunities and their related costs * ability to obtain productivity savings * ability to achieve cost savings from integration of acquisitions * ability to obtain additional financing * interest and foreign currency exchange rates * paper and other raw material costs and the ability to pass paper costs on to customers * postage rates and other changes in the direct mail industry * general labor conditions This entire report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company's business. OVERVIEW, HISTORICAL FINANCIAL DATA BY SEGMENT (IN THOUSANDS) The following table presents historical financial data by segment, including acquisitions from their purchase dates. The Commercial Printing results include those of the merged businesses described in Note 2 to the Consolidated Financial Statements (accounted for under the pooling of interests method), except that the results of IPC Graphics have been included with the Printing for Distributors segment beginning January 1, 1997. The results for 1998 have been restated to reflect the combination of the High Impact Color Printing segment with the Commercial Printing segment. In addition, amounts were reclassified from Envelopes to Commercial Printing for transfers of a business unit.
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net sales Commercial Printing $165,860 $115,685 $349,659 $215,178 Envelopes 180,994 184,467 379,869 375,126 Printing for Distributors 39,066 28,602 71,942 53,159 Labels 53,126 21,305 77,993 25,330 -------- -------- -------- -------- Total net sales $439,046 $350,059 $879,463 $668,793 ======== ======== ======== ======== Operating income Commercial Printing $ 13,321 $4,776 $ 27,234 $ 10,529 Envelopes 23,619 19,869 48,736 41,353 Printing for Distributors 3,792 2,508 6,549 4,209 Labels 3,941 1,661 5,622 1,924 Corporate (5,756) (3,176) (11,596) (6,600) Merger costs - (771) - (3,002) -------- -------- -------- -------- Total operating income 38,917 24,867 76,545 48,413 Interest expense (14,049) (7,763) (26,816) (15,153) Other income (expense) 528 482 704 1,085 Income tax expense (10,412) (6,287) (20,677) (13,513) -------- -------- -------- -------- Net income $ 14,984 $ 11,299 $ 29,756 $ 20,832 ======== ======== ======== ========
23 Net sales for the quarter ended June 30, 1999 increased 25.4% to $439.0 million compared to net sales of $350.1 million for the quarter ended June 30, 1998. This increase in net sales was attributable to sales from companies acquired during 1999, a full quarter of sales from companies acquired during 1998 and internal growth in each segment. Gross profit of $107.4 million for the quarter ended June 30, 1999 represents a 52.4% increase over the quarter ended June 30, 1998. Expressed as a percent of net sales, gross profit increased by 430 basis points (BP) to 24.4% for the quarter ended June 30, 1999 compared to 20.1% for the quarter ended June 30, 1998 primarily due to the Company's productivity improvements, the impact of purchasing programs and benefits from restructuring initiatives. Expressed as a percent of net sales, selling, administrative and other expense increased 260 BP to 15.6% for the quarter ended June 30, 1999 from 13.0% in quarter ended June 30, 1998. The increase was mainly due to increased amortization expense, the impact of acquisitions and an increase in corporate administrative expense attributable to expanded treasury and finance operations. Operating income increased 56.5% from the quarter ended June 30, 1998. Earnings for the quarter ended June 30, 1999 increased 32.6% to $15.0 million from $11.3 million in the second quarter of the prior year. Earnings per diluted share increased 27.3% to $0.28 in the quarter ended June 30, 1999 from $0.22 in 1998. Net sales for the six-months ended June 30, 1999 increased 31.5% to $879.5 million compared to net sales of $668.8 million for the six- months ended June 30, 1998. This increase in net sales was attributable to sales from companies acquired during 1999, a full six-months of sales from companies acquired during 1998 and internal growth in each segment. Gross profit of $207.0 million for the six-months ended June 30, 1999 represents a 48.4% increase over the six-months ended June 30, 1998. Expressed as a percent of net sales, gross profit increased by 260 BP to 23.5% for the six-months ended June 30, 1999 compared to 20.9% for the six-months ended June 30, 1998 primarily due to the Company's productivity improvements, the impact of purchasing programs and benefits from restructuring initiatives. Expressed as a percent of net sales, selling, administrative and other expense increased 120 BP to 14.8% for the six-months ended June 30, 1999 from 13.6% in six-months ended June 30, 1998. The increase was mainly due to increased amortization expense, the impact of acquisitions and an increase in corporate administrative expense attributable to expanded treasury and finance operations. Operating income increased 58.1% from the six-months ended June 30, 1998. Earnings for the six-months ended June 30, 1999 increased 42.8% to $29.8 million from $20.8 million in the six-month period of the prior year. Earnings per diluted share increased 33.3% to $0.56 in the six- months ended June 30, 1999 from $0.42 in 1998. RESTRUCTURING CHARGES -- In November 1998 the Company committed to implement a restructuring program affecting the Envelopes and Commercial Printing segments and recorded a pre-tax provision of $16.0 million, of which $11.7 million represents non-cash charges for asset write-offs and impairments. The Company also incurred $0.5 million of costs in each of the quarters ended March 31, 1999 and June 30, 1999 relating to the relocation of equipment which under generally accepted accounting principles could not be previously accrued for as part of the Company's restructuring initiative. These costs are included in "Selling, administrative and other" in the consolidated statements of operations. For more information on these charges please refer to Note 5 of the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 1998 and Note 5 of the Financial Statements included in this Form 10-Q. 24 RESULTS OF OPERATIONS FOR SIGNIFICANT BUSINESS SEGMENTS Commercial Printing QUARTER ENDED JUNE 30, 1999 COMPARED TO THE QUARTER ENDED JUNE 30, 1998 NET SALES -- Net sales increased by $50.2 million (43.4%) for the quarter ended June 30, 1999 compared to the quarter ended June 30, 1998, primarily due to acquisitions in 1998 and 1999. Without acquisitions and the loss of sales from businesses we planned to exit, volume gains (offset by declining paper prices) were up 4%. OPERATING INCOME -- The majority of the increase in operating income from $4.8 million to $13.3 million in the quarter ended June 30, 1999 was due to improvements in gross margins. Cost of sales includes materials (net of waste recovery revenue), labor, depreciation and other manufacturing and distribution costs. Total cost of sales, as a percent of sales, decreased from 81.6% for the quarter ended June 30, 1998 to 77.5% for the quarter ended June 30, 1999. This decline was primarily due to the impact of the benefits from new acquisitions adopting our corporate purchasing programs and continuous improvement initiatives. SIX-MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX-MONTHS ENDED JUNE 30, 1998 NET SALES -- Net sales increased by $134.5 million (62.5%) for the six-months ended June 30, 1999 compared to the six-months ended June 30, 1998, primarily due to acquisitions in 1998 and 1999. Without acquisitions net sales were essentially unchanged as volume gains were offset by declining paper prices. OPERATING INCOME -- The majority of the increase in operating income from $10.5 million to $27.2 million in the six-months ended June 30, 1999 was due to improvements in gross margins. Cost of sales includes materials (net of waste recovery revenue), labor, depreciation and other manufacturing and distribution costs. Total cost of sales, as a percent of sales, decreased from 80.6% for the six-months ended June 30, 1998 to 77.9% for the six-months ended June 30, 1999. This decline was primarily due to the impact of the benefits from new acquisitions adopting our corporate purchasing programs and continuous improvement initiatives. Envelopes QUARTER ENDED JUNE 30, 1999 COMPARED TO THE QUARTER ENDED JUNE 30, 1998 NET SALES -- Net sales decreased by $3.5 million (1.9%) for the quarter ended June 30, 1999 compared to the quarter ended June 30, 1998. Paper cost changes have historically been passed through to the customer. Adjusting for a decrease in paper prices (approximately 14% change in paper material costs) revenues increased 5%. Half of the increase was attributable to real revenue growth and the other half was attributable to acquisitions. As the Company has grown and implemented its restructuring initiatives, by expanding into multiple markets and changing markets, mix is significantly impacted by the various products and geographical locations served. Therefore, it is difficult to quantify the change in sales due to volume/price/mix. OPERATING INCOME -- The majority of the increase in operating income from $19.9 million to $23.6 million in the quarter ended June 30, 1999 was due to improvements in gross margins. Cost of sales includes materials (net of waste recovery revenue), labor, depreciation and other manufacturing and distributions costs. Total cost of sales, as a percent of sales, decreased from 78.3% for the quarter ended June 30, 1998 to 73.8% for the quarter ended June 30, 1999. The decrease was due to the positive benefits of the Company's restructuring plan and the impact of purchasing and productivity programs. 25 SIX-MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX-MONTHS ENDED JUNE 30, 1998 NET SALES -- Net sales increased by $4.8 million (1.3%) for the six-months ended June 30, 1999 compared to the six-months ended June 30, 1998. Adjusting for acquisitions and a decrease in paper prices, which are passed on to customers, (approximately 17% change in paper material costs) revenues were up 3.8%. OPERATING INCOME -- The majority of the increase in operating income from $41.4 to $48.7 in the six months ended June 30, 1999 was due to improvements in gross margins. Cost of sales includes materials (net of waste recovery revenue), labor, depreciation and other manufacturing and distributions costs. Total cost of sales, as a percent of sales, decreased from 77.7% for the six-months ended June 30, 1998 to 74.5% for the six-months ended June 30, 1999. The decrease was due to the positive benefits of the Company's restructuring plan and the impact of purchasing and productivity programs. Corporate Certain major production equipment is accounted for as an operating lease on a consolidated basis while treated as a purchase on a segment level. The Company classifies the excess of the operating lease expense over depreciation as a corporate expense in analyzing segment operations. The Company does not include the amortization of intangibles recorded in acquisitions in segment results but rather includes it on a corporate basis. In addition, corporate expenses include corporate administrative expense and loss (gain) on disposal of assets. Corporate expenses for the quarter and six-months ended June 30, 1999 increased $2.6 million and $5.0 million, respectively, compared to 1998 as a result of increases in amortization expense and corporate administrative expense. Amortization expense increased as a result of the acquisitions made in the year ended December 31, 1998 and the six- months ended June 30, 1999. The increase in corporate administrative expense was attributable to expanded treasury and finance operations. MERGER COSTS -- Effective May 30, 1998, the Company completed its mergers with six commercial printing companies and one printing for distributor company through the exchange of common stock. In connection with the mergers, transaction costs incurred of $3.0 and $0.8 million were expensed in the six-months and quarter ended June 30, 1998, respectively. These costs consist primarily of investment banking, legal and accounting fees. For more information on these mergers please refer to Note 2 of the Notes to Consolidated Financial Statements. INTEREST EXPENSE -- Interest expense for the quarter ended June 30, 1999 increased $6.2 million compared to the quarter ended June 30, 1998. Interest expense for the six-months ended June 30, 1999 increased $11.6 million compared to the six-months ended June 30, 1998. Both increases occurred as a result of higher average bank debt balances, primarily due to acquisitions, and a slight increase in the overall average borrowing rate. The Company continued to participate in its accounts receivable securitization agreement whereby it can sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable up to a maximum of $100.0 million until November 2001. At June 30, 1999 and 1998, $96.0 million and $84.5 million, respectively, had been sold under this agreement. In July 1999, the Company closed out this securitization agreement and entered into a new accounts receivable securitization facility. The Company entered into a five- year agreement whereby it can sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable up to a maximum of $150.0 million. The receivables were sold at a discount slightly above the prevailing commercial paper rate, plus certain other fees. INCOME TAX EXPENSE -- The effective tax rate for all periods was higher than the federal statutory rate due to state and provincial income taxes and certain goodwill amortization that is not tax deductible. See Notes 2 and 9 of the Notes to Consolidated Financial Statements included in the Company's 1998 Form 10-K. 26 LIQUIDITY AND CAPITAL RESOURCES HISTORICAL CASH FLOW -- Net cash flow provided by operating activities was $74.7 million and $24.9 million for the six-months ended June 30, 1999 and 1998, respectively. Acquisitions required cash payments of $162.6 million and $254.6 million for the six-months ended June 30, 1999 and 1998, respectively. Other investing activities include capital expenditures, which were $38.1 million and $30.6 million for the six-months ended June 30, 1999 and 1998, respectively. Net cash flow from financing activities was positively affected by the increase in receivables sold under the securitization agreement through June 30, 1999 and 1998 of $43.2 million and $6.9 million, respectively. At June 30, 1999, the Company had approximately $113.0 million of available credit under the $300.0 million Bank of America credit facility. In addition, at June 30, 1999, the Company had sold $96 million of receivables under the $100.0 million securitization facility. SECURITIES OFFERINGS -- The Company has an effective shelf registration statement on Form S-3 that permits the Company to issue debt securities, common stock, preferred stock or warrants. At June 30, 1999, there was availability remaining to issue approximately $52.0 million of securities under the shelf registration statement. In December 1998 the Company's wholly-owned operating subsidiary, Mail-Well I Corporation, issued $300.0 million in aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008 (the "Senior Notes"). The Senior Notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. In June 1999 Mail-Well I completed an exchange offer whereby it exchanged $300 million in aggregate principal amount of 8 3/4% Series B Senior Subordinated Notes due 2008 for all of the outstanding Senior Notes in a transaction registered under the Securities Act. FOREIGN CURRENCY -- With the strengthening U.S. Dollar, the Company's foreign currency exposure primarily relates to its Canadian operations. Net sales provided by the Canadian operations for the six- months ended June 30, 1999 and 1998 was USD $95.4 million and USD $68.8 million, respectively. The impact of the change in Canadian Dollar exchange rates was minimal. SEASONALITY AND ENVIRONMENT -- As the Company expands its operations into more commercial printing and labels segments, it has become more impacted by seasonality. Management expects the first and third quarter to report higher sales for the Commercial Printing segment because of annual report and car brochure business. In addition, the third quarter is traditionally the strongest for the Labels segment. The effects of environmental matters had no material financial impact on the historical operations of the Company and are not expected to have a material effect on the Company's liquidity and capital resources. RECENT DEVELOPMENTS On August 4, 1999, the Company purchased Enterprise Press, a commercial printer in New York, NY, with annual sales of approximately $23.0 million. On August 6, 1999, the Company purchased Direct Graphics, Inc., which specializes in direct mail printing and services. The Sidney, Ohio-based company reported 1998 sales of $21.0 million. On July 2, 1999, the Company announced that Gary H. Ritondaro has been named Senior Vice President and CFO of Mail-Well, Inc., succeeding Michael A. Zawalski whom became President and CEO of Mail-Well Label. On July 7, 1999, we announced that David H. Holt was appointed President and CEO of the Printing for Distributors segment. 27 YEAR 2000 In 1997 the Company began to assess its existing computer systems, including an assessment of Year 2000 compliance. In May 1998 the Company instituted a Year 2000 Project whose goal was to develop and execute a plan for Year 2000 compliance throughout the Company. The Company has established an individual at every significant operating entity to be responsible for coordination with the Year 2000 Project. What is the Company's state of readiness? What are the costs? The Company's Year 2000 Project is directed to four major areas: core computer systems, networking and communications, ancillary systems (including plant machinery) and verification with key suppliers. The following summarizes our state of readiness and the costs to address the Company's Year 2000 issues. CORE COMPUTER SYSTEMS The Company completed an assessment of its existing computer systems in 1997 and expected to spend and capitalize approximately $9 to $11 million through 1999 to purchase and install new systems. The new systems are Y2K compliant. These costs are being funded through operating cash flows. Several computer systems were due to be replaced but were accelerated because of the Year 2000 issue. Through June 30, 1999, approximately $9.4 million of the estimated $10 to $12 million has been capitalized. The amount expected to be capitalized has been increased due to acquisitions and other projects, which were subsequently added. Through June 1999, 72% of the core systems are compliant. System replacements are in the implementation phase at all remaining divisions; i.e., hardware and network equipment is operational, software is in place, and project teams are working on training and transition. The Company has met all of its core computer systems replacement goals to date and expects to complete the remainder by the end of the third quarter. NETWORKING AND COMMUNICATIONS The Company is also taking actions required to minimize the risk that its remaining business critical networking and communications systems will be disrupted with respect to dating in the year 2000. The Company has completed or is engaged in the process of updating, replacing and testing certain of its network operating systems and network equipment and firmware so as to operate without disruption due to year 2000 issues. These actions are scheduled to be completed through the third quarter of 1999 and, based on current information available, the Company does not anticipate the costs of remedial actions, which are being expensed as incurred, will be material. ANCILLARY SYSTEMS AND VERIFICATION WITH KEY SUPPLIERS The Company has completed an inventory of year 2000 sensitive devices, plant machinery and desktop software. The Company has also completed a listing of business critical suppliers, such as paper and ink suppliers. All such suppliers have been identified and contacted for information on their actions to mitigate Year 2000 disruptions. Results of the supplier surveys, of both device and manufacturing suppliers, and follow-up mailings are reflected in contingency planning at each division. Based on the information received through June 30, 1999, management does not believe costs to replace year 2000 sensitive devices, plant machinery and desktop software will exceed $1.5 million, which management does not consider to be material to our financial condition or cash flow. What is the Company doing about contingency planning? Every location of the Company is required to prepare a contingency plan and to file it with the Mail-Well Y2K Office. The contingency guidelines to be followed will address the following issues, among others: 28 * Response to and recovery from Y2K related failures * Raw materials inventory stocking levels and alternative sources * Review of disaster recovery plans * Comprehensive system backup procedures to preserve 1999 data at year-end * Availability of key staff on-site during the New Year's weekend * Coordination of planning with other Mail-Well plants What are the risks of the Company's Year 2000 issues? The Company presently believes it has an effective plan in place to anticipate and resolve any potential Year 2000 issues in a timely manner. In the event, however, the Company does not properly identify Year 2000 issues or the resolution is not timely conducted for those Year 2000 issued identified, there can be no assurance that Year 2000 issues will not materially and adversely affect the Company's results of operations or relationships with third parties. In addition, disruptions in the economy generally resulting from Year 2000 issues also could materially and adversely affect the Company. The amount of potential liability and lost revenue that would be reasonably likely to result from the failure by the Company and certain key third parties to achieve Year 2000 compliance on a timely basis cannot be reasonably estimated at this time. The Company expects to complete a contingency plan to deal with the most reasonably likely worst case scenario during the third quarter of 1999. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (the "Statement"). The Statement, which will be effective for the year 2001, requires derivative instruments to be recorded in the balance sheet at their fair value with changes in fair value being recognized in earnings unless specific hedging accounting criteria are met. Although the Company believes it has a minimal current level of hedging and derivative activity, it has not determined the impact of this statement on its operations and financial position. In March 1998, the Accounting Standards Executive Committee of the AICPA issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". The SOP, which has been adopted prospectively as of January 1, 1999, requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. Prior to the adoption of the SOP, the Company expensed all internal use software related internal costs as incurred. The effect of adopting the SOP was immaterial to the quarter and six-months ended June 30, 1999 and is not expected to have a material impact on earnings going forward. ITEM 3.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks, including foreign currency and interest rate risks. The foreign currency risk for foreign currency denominated debt obligations (US$ 24,239,000 at June 30, 1999) and the interest rate risk for the investment in accounts receivable securitization ($3,925,000 at June 30, 1999) are not considered to be significant since the fair values and carrying values are not material to the Company's financial position. The Company's cash flows from operations and earnings are affected by changes in short-term interest rates since a large portion of its credit agreements include rates variable with LIBOR. As of June 30, 1999, $187 million of variable rate debt was outstanding. The fair value of the Company's fixed rate long- term debt is affected by changes in long-term interest rates. See Item 7A of the Company's 1998 Form 10-K for quantitative and qualitative disclosures about market risk. No significant changes in market risk have occurred since that filing. 29 PART II--OTHER INFORMATION ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS On May 5, 1999, the Company held its Annual Meeting of Stockholders, at which the following matters were voted upon: ELECTION OF DIRECTORS--The following individuals were re-elected to the Board of Directors by the following vote: For Withhold --- -------- Frank P. Diassi 29,617,495 68,671 Frank J. Hevrdejs 29,617,965 68,201 Gerald F. Mahoney 29,586,918 99,248 Jerome W. Pickholz 29,626,416 59,750 Paul V. Reilly 29,599,514 86,652 William R. Thomas 29,626,795 59,371 The following individual was elected to the Board of Directors by the following vote: For Withhold --- -------- Janice C. Peters 29,624,848 61,318 SELECTION OF AUDITORS--The selection of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending 1999 was ratified by the following vote: 29,524,909 For, 123,800 Against, 37,457 Abstentions. ITEM 6.--EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 3(i) Articles of Incorporation of the Company - incorporated by reference from Exhibit 3(i) of the Company's Form 10-Q for the quarter ended June 30, 1997. 3(ii) Bylaws of the Company - incorporated by reference from Exhibit 3.4 of the Company's Registration Statement on Form S-1 dated September 21, 1995. 4.1 Form of Certificate representing the Common Stock, par value $0.01 per share, of the Company - incorporated by reference from Exhibit 4.1 of the Company's Amendment No. 1 to Form S-3 dated October 29, 1997 (Reg. No. 333-35561). 4.2 Form of Indenture between the Company and The Bank of New York, as Trustee, dated November 1997, relating to the Company's $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002--incorporated by reference from Exhibit 4.2 to the Company's Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333-36337). 4.3 Form of Supplemental Indenture between the Company and The Bank of New York, as Trustee, dated November 1997, relating to the Company's $152,050,000 aggregate principal amount of 5% Convertible Subordinated Notes due 2002 and Form of Convertible Note--incorporated by reference from Exhibit 4.5 to the Company's Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No. 333-36337). 4.4 Indenture dated as of December 16, 1998 between Mail-Well I Corporation ("MWI") and State Street Bank and Trust Company, as Trustee, relating to MWI's $300,000,000 aggregate principal amount of 8 3/4% Senior Subordinated Notes due 2008 - incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1998. 4.5 Form of Senior Subordinated Note. Incorporated by reference from the company's Annual Report of Form 10-K for the year ended December 31, 1998. 10.1 Form of Indemnity Agreement between the Company and each of its officers and directors - incorporated by reference from Exhibit 10.17 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 30 10.2 Form of Indemnity Agreement between Mail-Well I Corporation and each of its officers and directors - incorporated by reference from Exhibit 10.18 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as of February 23, 1994 and related Employee Stock Ownership Plan Trust Agreement - incorporated by reference from Exhibit 10.19 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.4 Form of M-W Corp. 401(k) Savings Retirement Plan - incorporated by reference from Exhibit 10.20 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.5 Mail-Well, Inc. 1994 Stock Option Plan, as amended on May 7, 1997 - incorporated by reference from Exhibit 10.56 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 10.6 Form of 1994 Incentive Stock Option Agreement - incorporated by reference from Exhibit 10.22 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.7 Form of the Company Nonqualified Stock Option Agreement - incorporated by reference from Exhibit 10.23 of the Company's Registration Statement on Form S-1 dated March 25, 1994. 10.8 Purchase and Contribution Agreement dated as of November 15, 1996 between Mail-Well I Corporation, Wisco Envelope Corp., Pavey Envelope and Tag Corp., Mail-Well West, Inc., Graphic Arts Center, Inc., Wisco III, L.L.C., Supremex, Inc., Innova Envelope, Inc., as Sellers, and Mail-Well Trade Receivables Corp., as Purchaser-incorporated by reference from Exhibit 10.39 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10.9 Mail-Well Receivables Master Trust Pooling and Servicing Agreement dated as of November 15, 1996 by and between Mail- Well Trade Receivables Corporation, Seller, Mail-Well I Corporation, Servicer, and Norwest Bank Colorado, National Association, Trustee-incorporated by reference from Exhibit 10.40 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10.10 Series 1996-1 Supplement dated as of November 15, 1996 to Pooling and Servicing Agreement, dated as of November 15, 1996, by and between Mail-Well Trade Receivables Corporation, Seller, Mail-Well I Corporation, Servicer, and Norwest Bank Colorado, National Association, as Trustee on behalf of the Series 1996-1 Certificateholders-incorporated by reference from Exhibit 10.41 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10.11 Series 1996-1 Certificate Purchase Agreement dated as of November 15, 1996 among Mail-Well Trade Receivables Corporation, as Seller, Corporate Receivables Corporation, as Purchaser, Norwest Bank Colorado, National Association, as Trustee, and Mail-Well I Corporation, as Servicer- incorporated by reference from Exhibit 10.42 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10.12 Mail-Well, Inc. 1997 Non-Qualified Stock Option Plan -- incorporated by reference from exhibit 10.54 of the Company's Form 10-Q for the quarter ended March 31, 1997 10.13 1997 Non-Qualified Stock Option Agreement -- incorporated by reference from exhibit 10.54 of the Company's Form 10-Q for the quarter ended March 31, 1997. 10.14 Mail-Well, Inc. 1998 Incentive Stock Option Plan -- incorporated by reference from Exhibit 10.58 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.15 Form of 1998 Incentive Stock Option Agreement -- incorporated by reference from Exhibit 10.59 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.16 Credit Agreement dated as of March 16, 1998 among Mail-Well I Corporation, certain Guarantors, Bank of America National Trust and Savings Association, as Agent and other financial institutions party thereto Agreement -- incorporated by reference from Exhibit 10.60 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.17 Credit Agreement dated as of March 16, 1998 among Supremex Inc., certain Guarantors, Bank of America National Trust and Savings Association, as Agent and other financial institutions party thereto -- incorporated by reference from Exhibit 10.61 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.18 Participation Agreement dated as of December 15, 1997 among Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto -- incorporated by reference from Exhibit 10.62 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.19 Equipment Lease dated as of December 15, 1997 among Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto -- incorporated by reference from Exhibit 10.63 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 31 10.20 Guaranty Agreement dated as of December 15, 1997 among Mail- Well, Inc., Graphic Arts Center, Inc., Griffin Envelope Inc., Murray Envelope Corporation, Shepard Poorman Communications Corporation, Wisco Envelope Corp., Wisco II, LLC, Wisco III, LLC, Mail-Well I Corporation, Keybank National Association, as Trustee and other financial institutions party thereto -- incorporated by reference from Exhibit 10.64 to the Company's Quarterly report on Form 10-Q for the quarter ended March 31, 1998. 10.21 Purchase Agreement dated as of December 15, 1997 among Mail- Well I Corporation and Poser Business Forms, Inc. and other Selling Shareholders party thereto -- incorporated by reference from the Company's report on Form 8-K dated January 6, 1998. 10.22 Asset Purchase Agreement dated as of January 31, 1998 among Lawson Mardon Packaging USA, Inc (USA) -- incorporated by reference from the Company's report on Form 8-K dated March 10, 1998. 10.23 Asset Purchase Agreement dated as of January 31, 1998 among 3014597 Nova Scotia Company and Lawson Mardon Packaging Inc. (Canada) -- incorporated by reference from the Company's report on Form 8-K dated March 10, 1998. 10.24 Purchase Agreement dated December 11, 1998, between MWI and Donaldson, Lufkin & Jenrette Securities Corporation, Prudential Securities, Incorporated, Bear, Stearns & Co., Inc. and Hanifen, Imhoff Inc., as Initial Purchasers, relating to MWI's $300,000,000 aggregate principal amount of 8 3/4% Senior subordinated Notes due 2008 -- incorporated by reference from Exhibit 10.27 of the Company's Annual Report on form 10-K for the year ended December 31, 1998. 10.25 Registration Rights Agreement dated December 16, 1998 by and among MWI and Donaldson, Lufkin & Jenrette Securities Corporation, Prudential Securities, Incorporated, Bear, Stearns & co., Inc. and Hanifen, Imhoff Inc., as Initial Purchasers, relating to MWI's $300,000,000 aggregate principal amount of 8 3/4% Senior subordinated Notes due 2008 -- incorporated by reference from Exhibit 10.27 of the Company's Annual Report on form 10-K for the year ended December 31, 1998. 27.1 Financial Data Schedule for six-months ended June 30, 1999 [FN] - ----------- Filed herewith. (b) Reports on Form 8-K A report on Form 8-K was filed on April 22, 1999, announcing the financial results of the company for the quarter ending March 31, 1999. 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAIL-WELL, INC. (Registrant) By /s/ Gerald F. Mahoney --------------------------------- Date: August 13, 1999 Gerald F. Mahoney Chairman of the Board/ Chief Executive Officer By /s/ Gary H. Ritondaro --------------------------------- Date: August 13, 1999 Gary H. Ritondaro Senior Vice President, Chief Financial Officer 33 EX-27.1 2 FINANCIAL DATA WORKSHEET FOR MAIL-WELL, INC.
5 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 10,597 3,925 154,970 0 138,685 346,288 632,293 (126,332) 1,301,415 219,647 0 0 0 490 336,793 1,301,415 879,463 879,463 672,456 802,918 (704) 0 26,816 50,433 20,677 29,756 0 0 0 29,756 0.61 0.56
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