Back to GetFilings.com
=============================================================================
- -----------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
COMMISSION FILE NUMBER 1-12551
------------------------
MAIL-WELL, INC.
(Exact name of Registrant as specified in its charter.)
COLORADO 84-1250533
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8310 S. VALLEY HIGHWAY, #400 80112
ENGLEWOOD, CO
(Address of principal executive offices) (Zip Code)
303-790-8023
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of May 1, 2003 was $62,275,389.
As of May 1, 2003 the Registrant had 48,343,060 shares of Common Stock,
$0.01 par value, outstanding.
- -----------------------------------------------------------------------------
=============================================================================
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements........................................ 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 27
Item 4. Controls and Procedures..................................... 27
PART IV
Item 6. Exhibits and Reports on Form 8-K............................ 28
i
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAIL-WELL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
MARCH 31, 2003
(UNAUDITED) DECEMBER 31, 2002
-------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 344 $ 2,650
Accounts receivable, net............................... 227,049 219,924
Inventories, net....................................... 104,546 103,533
Net assets held for sale............................... -- 4,492
Other current assets................................... 48,225 45,762
---------- ----------
TOTAL CURRENT ASSETS............................... 380,164 376,361
Property, plant and equipment, net......................... 379,677 379,624
Goodwill................................................... 293,436 290,361
Other intangible assets, net............................... 18,142 18,586
Other assets, net.......................................... 38,851 42,435
---------- ----------
TOTAL ASSETS............................................... $1,110,270 $1,107,367
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 143,715 $ 151,930
Accrued compensation and related liabilities........... 49,660 53,292
Other current liabilities.............................. 59,979 67,848
Current maturities of long-term debt................... 2,193 2,961
---------- ----------
TOTAL CURRENT LIABILITIES.......................... 255,547 276,031
Long-term debt............................................. 775,058 760,938
Deferred income taxes...................................... 9,041 10,336
Other liabilities.......................................... 17,175 17,294
---------- ----------
TOTAL LIABILITIES.......................................... 1,056,821 1,064,599
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 25,000 shares
authorized, none issued.............................. -- --
Common stock, $0.01 par value; 100,000,000 shares
authorized, 48,337,031 shares issued and outstanding
as of March 31, 2003 and December 31, 2002........... 483 483
Paid-in capital........................................ 213,882 213,826
Retained deficit....................................... (152,338) (155,481)
Deferred compensation.................................. (2,377) (2,471)
Accumulated other comprehensive loss................... (6,201) (13,589)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY......................... 53,449 42,768
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. $1,110,270 $1,107,367
========== ==========
See notes to condensed consolidated financial statements.
1
MAIL-WELL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except earnings per share amounts)
THREE MONTHS ENDED MARCH 31
---------------------------
2003 2002
-------- ---------
Net sales................................................... $427,319 $ 443,482
Cost of sales............................................... 343,472 355,453
-------- ---------
Gross profit................................................ 83,847 88,029
Operating expenses:
Selling, general and administrative..................... 63,480 68,191
Amortization of intangibles............................. 445 502
Loss from the early extinguishment of debt.............. -- 7,745
Restructuring and other charges......................... 685 14,527
-------- ---------
Operating income (loss)..................................... 19,237 (2,936)
Other expense:
Interest expense........................................ 17,979 14,905
Other................................................... 131 292
-------- ---------
Income (loss) from continuing operations before income taxes
and cumulative effect of a change in accounting
principle................................................. 1,127 (18,133)
Provision (benefit) for income taxes........................ 484 (4,524)
-------- ---------
Income (loss) from continuing operations before cumulative
effect of a change in accounting principle................ 643 (13,609)
Loss (gain) on disposal of discontinued operations.......... (2,500) 7,999
Cumulative effect of a change in accounting principle....... -- 111,748
-------- ---------
Net income (loss)........................................... $ 3,143 $(133,356)
======== =========
Earnings (loss) per share--basic:
Continuing operations................................... $ 0.01 $ (0.29)
Discontinued operations................................. 0.06 (0.17)
Cumulative effect of a change in accounting principle... -- (2.34)
-------- ---------
Earnings (loss) per share--basic............................ $ 0.07 $ (2.80)
======== =========
Earnings (loss) per share--diluted:
Continuing operations................................... $ 0.01 $ (0.29)
Discontinued operations................................. 0.05 (0.17)
Cumulative effect of a change in accounting principle... -- (2.34)
-------- ---------
Earnings (loss) per share--diluted.......................... $ 0.06 $ (2.80)
======== =========
Weighted average shares--basic.............................. 47,668 47,658
Weighted average shares--diluted............................ 48,376 47,658
See notes to condensed consolidated financial statements.
2
MAIL-WELL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
THREE MONTHS ENDED MARCH 31
---------------------------
2003 2002
--------- ---------
Cash flows from operating activities:
Income (loss) from continuing operations.................. $ 643 $ (13,609)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating
activities:
Depreciation......................................... 11,190 11,478
Amortization......................................... 1,383 1,967
Noncash portion of restructuring, impairment and
other charges....................................... -- 6,724
Deferred income tax benefit.......................... (1,988) (2,195)
Loss on disposal of assets........................... 258 254
Other noncash charges, net........................... 1,012 96
Changes in operating assets and liabilities, excluding the
effects of acquisitions and dispositions:
Accounts receivable.................................. (5,716) 5,060
Inventories.......................................... (414) 972
Accounts payable and accrued compensation............ (12,668) 1,799
Income taxes payable................................. (2,379) (4,712)
Other working capital changes........................ (5,422) (495)
Other, net........................................... 661 347
--------- ---------
Net cash (used in) provided by operating
activities........................................ (13,440) 7,686
Cash flows from investing activities:
Acquisitions.......................................... -- (1,003)
Capital expenditures.................................. (6,416) (11,340)
Proceeds from divestitures, net....................... 3,864 31,623
Proceeds from sales of property, plant and
equipment........................................... 515 60
--------- ---------
Net cash (used in) provided by investing
activities........................................ (2,037) 19,340
Cash flows from financing activities:
Proceeds from issuance of long-term debt.............. 485,122 569,000
Repayments of long-term debt.......................... (471,815) (459,360)
Capitalized loan fees................................. (316) (12,037)
--------- ---------
Net cash provided by financing activities........... 12,991 97,603
Effect of exchange rate changes on cash and cash
equivalents................................................ 180 (324)
Cash flows from discontinued operations..................... -- (4,142)
--------- ---------
Net (decrease) increase in cash and cash
equivalents....................................... (2,306) 120,163
Cash and cash equivalents at beginning of year.............. 2,650 2,014
--------- ---------
Cash and cash equivalents at end of period.................. $ 344 $ 122,177
========= =========
See notes to condensed consolidated financial statements.
3
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of
Mail-Well, Inc. and subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 2003 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2003. The
balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the
information and footnote disclosures required by generally accepted
accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 2002.
During June 2002, the decision was made to discontinue efforts to sell
the PrintXcel business. As such, the consolidated statements of operations
and cash flows for the three months ended March 31, 2002 have been restated
to include this business as part of the continuing operations. PrintXcel,
which is the Company's Printed Office Products operating segment, had
previously been reported in discontinued operations.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets, on January 1, 2002
and completed its determination of the goodwill impairment of the
Commercial Printing segment in the fourth quarter of 2002. The transitional
impairment of $111.7 million was recorded as the cumulative effect of a
change in accounting principle as of January 1, 2002 and required the
restatement of net income in the condensed consolidated statement of
operations as of March 31, 2002.
The Company adopted SFAS No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,
on January 1, 2003. The provisions of SFAS No. 145 required the
reclassification of the loss from the early extinguishment of debt that was
recorded as an extraordinary item in the first quarter of 2002 into income
from continuing operations.
The table below is a reconciliation of loss per share as of March 31,
2002 as originally reported and the loss per share as restated.
MARCH 31, 2002 IMPACT OF
AS ORIGINALLY IMPACT OF IMPACT OF RECLASSIFICATION OF MARCH 31, 2002
REPORTED SFAS 142 SFAS 145 PRINTXCEL RESTATED
-------------- --------- --------- ------------------- --------------
Loss per share--basic and
diluted*:
Continuing operations...... $(0.17) $ -- $(0.10) $(0.01) $(0.29)
Discontinued operations.... (0.18) -- -- 0.01 (0.17)
Extraordinary items........ (0.10) -- 0.10 -- --
Cumulative effect of a
change in accounting
principle................ -- (2.34) -- -- (2.34)
------ ------ ------ ------ ------
Loss per share............. $(0.45) $(2.34) $ -- $ -- $(2.80)
====== ====== ====== ====== ======
- --------
* The following table may not add due to rounding.
4
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research
Bulletin No. 51 ("Interpretation 46"). Interpretation 46 requires the
consolidation of variable interest entities in which an enterprise absorbs
a majority of the entity's expected losses, receives a majority of the
entity's expected residual returns, or both, as a result of ownership,
contractual or other financial interest in the entity. Currently, entities
are generally consolidated by an enterprise that has a controlling
financial interest through ownership of a majority voting interest in the
entity.
Interpretation 46 currently applies to variable interest entities
created after January 31, 2003 and to variable interest entities in which a
company obtains an interest after that date. Since we had no such interests
arising after January 31, 2003, this interpretation has had no impact on
our financial condition or results of operations during the three months
ended March 31, 2003.
Beginning in the third quarter of 2003, we must apply Interpretation 46
to all interests in variable interest entities existing prior to January
31, 2003. We are the lessee in a series of leases covering our leased
machinery and equipment. The lessors are financing entities that we do not
consolidate. These leases do not contain a fixed-price purchase option and
we generally are not at risk for losses. We currently believe that it is
unlikely that we will be required to consolidate the underlying entities
upon application of the interpretation.
3. STOCK-BASED COMPENSATION
Stock options and other stock-based compensation awards are accounted
for using the intrinsic value method prescribed by Accounting Principles
Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees.
This method requires compensation expense to be recognized for the excess
of the quoted market price of the stock at the grant date or the
measurement date over the amount an employee must pay to acquire the stock.
The following table illustrates the pro forma effect of net income
(loss) and earnings (loss) per share if we had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, for the periods ended March 31, 2003 and 2002 (in thousands,
except per share data):
MARCH 31
-------------------------
2003 2002
--------- ---------
Net income (loss):
As reported....................................... $ 3,143 $(133,356)
Pro forma......................................... $ 2,588 $(134,267)
Earnings (loss) per share--basic:
As reported....................................... $ 0.07 $ (2.80)
Pro forma......................................... $ 0.05 $ (2.82)
Earnings (loss) per share--diluted:
As reported....................................... $ 0.06 $ (2.80)
Pro forma......................................... $ 0.05 $ (2.82)
The effect on pro forma net income (loss), earnings (loss) per
share--basic and earnings (loss) per share--diluted of expensing the
estimated fair value of stock options is not necessarily representative of
the effect on reported earnings for future years due to the vesting period
of the stock options and the potential for issuance of additional stock
options in future years.
5
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITION
In August 2002, the Company acquired the in-house printing and
fulfillment operations of American Express Company, located in Minneapolis,
Minnesota, for $1.3 million. This acquisition has been accounted for as a
purchase; accordingly, its assets and liabilities have been recorded at
estimated fair value with the excess of the purchase price over the
estimated fair value recorded as goodwill. The consolidated financial
statements reflect the operations of the acquired business since August
2002. Goodwill recorded as a result of this acquisition was $0.8 million.
Additional consideration may be paid which is contingent based on annual
revenues during each year of the five year period commencing on January 1,
2003. This may result in an additional consideration of up to $17.5
million. Sales included in the period ended March 31, 2003 were $9.2
million.
5. ASSETS HELD FOR SALE
The Company sold the filing products division of the Envelope segment
in August 2002 and certain digital graphics operations of the Commercial
Printing segment in March 2003. The following table presents the sales and
operating income of these operations included in the condensed consolidated
statements of operations for the three months ended March 31, 2003 and 2002
(in thousands):
MARCH 31
--------------------
2003 2002
------ -------
Sales.................................................. $2,872 $22,064
Operating income....................................... $ 167 $ 2,223
6. SUPPLEMENTAL BALANCE SHEET INFORMATION
INVENTORIES
The Company's inventories by major category are as follows (in
thousands):
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
Raw materials.......................................... $ 30,870 $ 32,515
Work in process........................................ 23,726 25,832
Finished goods......................................... 55,941 50,854
-------- --------
110,537 109,201
Reserves............................................... (5,991) (5,668)
-------- --------
$104,546 $103,533
======== ========
6
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL BALANCE SHEET INFORMATION (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
The Company's investment in property, plant and equipment consists of
the following (in thousands):
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
Land and land improvements............................. $ 20,028 $ 19,529
Buildings and improvements............................. 108,380 105,646
Machinery and equipment................................ 467,274 463,896
Furniture and fixtures................................. 15,357 15,178
Construction in progress............................... 7,787 5,510
--------- ---------
618,826 609,759
Accumulated depreciation............................... (239,149) (230,135)
--------- ---------
$ 379,677 $ 379,624
========= =========
COMPREHENSIVE INCOME (LOSS)
A summary of the comprehensive income (loss) is as follows (in
thousands):
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
2003 2002
--------- ---------
Net income (loss)...................................... $ 3,143 $(133,356)
Other comprehensive income (loss):
Currency translation adjustment, net................... 7,388 (1,348)
------- ---------
Comprehensive income (loss)............................ $10,531 $(134,704)
======= =========
7. LONG-TERM DEBT
At March 31, 2003 and December 31, 2002, long-term debt consisted of the
following (in thousands):
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
Senior Secured Credit Facility, due 2005............... $116,236 $101,932
Senior Notes, due 2012................................. 350,000 350,000
Senior Subordinated Notes, due 2008.................... 300,000 300,000
Other.................................................. 11,051 11,967
-------- --------
777,257 763,899
Less current maturities................................ (2,193) (2,961)
-------- --------
Long-term debt...................................... $775,058 $760,938
======== ========
In March 2002, the Company wrote off deferred financing costs of $7.7
million in connection with the early payment of a portion of the term loans
of the bank credit facility in effect at that date. This write-off was
reported as a loss from the early extinguishment of debt in the condensed
consolidated statement of operations for the three months ended March 31,
2002 as discussed in Note 1.
The Senior Notes and the Senior Subordinated Notes are guaranteed by
Mail-Well, Inc. and its U.S. subsidiaries (the "Guarantor Subsidiaries")
all of which are wholly owned. The guarantees are
7
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM DEBT (CONTINUED)
joint and several, full, complete and unconditional. There are no material
restrictions on the ability of the Guarantor Subsidiaries to transfer funds
to the issuing subsidiary in the form of cash dividends, loans or advances,
other than ordinary legal restrictions under corporate law, fraudulent
transfer and bankruptcy laws.
As of March 31, 2003, the Company was in compliance with all of the
covenants of its various debt agreements.
8. RESTRUCTURING AND OTHER CHARGES
The Company has substantially completed the restructuring programs
initiated in June 2001 which continued during 2002.
Restructuring recorded during the three-month period ended March 31,
2003 was $0.7 million all of which related to restructuring programs
initiated prior to 2003. The following table and discussion present the
details of these charges (in thousands):
PRINTED
COMMERCIAL OFFICE
PRINTING PRODUCTS TOTAL
---------- -------- -----
Employee separation and related employee expenses........... $ 43 $(140) $(97)
Equipment moves............................................. 690 -- 690
Other exit costs............................................ 92 -- 92
---- ----- ----
Total................................................... $825 $(140) $685
==== ===== ====
COMMERCIAL PRINTING. In the fourth quarter of 2002, Commercial Printing
announced the closure of its web printing operation in Indianapolis,
Indiana and the redeployment of the two web presses and related equipment
in St. Louis, Missouri and Baltimore, Maryland. A substantial portion of
the cost to dismantle, move and reinstall this equipment was incurred in
the first quarter of 2003.
The other charges also relate to plans initiated in the fourth quarter
of 2002 to right size our printing plants in the Northwest.
PRINTED OFFICE PRODUCTS. In the fourth quarter of 2002, Printed Office
Products closed its business forms plant in Clearwater, Florida and
consolidated its production in its Fairhope, Alabama plant. The employee
separation and related employee expenses paid as a result of this
consolidation were less than originally estimated.
A summary of the activity charged to the 2002 restructuring liability
during the three months ended March 31, 2003 is as follows (in thousands):
PRINTED
COMMERCIAL OFFICE
PRINTING PRODUCTS TOTAL
---------- -------- -------
Balance, December 31, 2002.......................... $3,990 $ 653 $ 4,643
Payments for severance.......................... (122) (289) (411)
Payments for lease termination and property exit
costs......................................... (987) (48) (1,035)
Payments for other exit costs................... (72) (256) (328)
Reversal of unused portion...................... -- 140 140
------ ----- -------
Balance, March 31, 2003............................. $2,809 $ 200 $ 3,009
====== ===== =======
8
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RESTRUCTURING AND OTHER CHARGES (CONTINUED)
A summary of the activity charged to the 2001 restructuring liability
during the three months ended March 31, 2003 is as follows (in thousands):
COMMERCIAL
ENVELOPE PRINTING TOTAL
-------- ---------- ------
Balance, December 31, 2002............................ $2,518 $ 449 $2,967
Payments for severance............................ (233) -- (233)
Payments for lease termination and property exit
costs........................................... (379) (307) (686)
------ ----- ------
Balance, March 31, 2003............................... $1,906 $ 142 $2,048
====== ===== ======
9. DISCONTINUED OPERATIONS
During the first quarter of 2003, we recorded a gain on the disposal of
discontinued operations in the amount of $2.5 million. This gain was the
result of a change in the estimated tax impact of the disposition of our
prime label business, which was sold in May 2002. The data required to
determine the full tax impact of this transaction was not available until
2003. The Company will finalize this estimate upon filing the final tax
return in the third quarter.
10. EARNINGS PER SHARE
Basic earnings per share exclude dilution and are computed by dividing
net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share reflect the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. A
reconciliation of the amounts included in the computation of basic earnings
(loss) per share and diluted earnings (loss) per share is as follows (in
thousands, except per share amounts):
MARCH 31
----------------------
2003 2002
------- --------
Numerator:
Numerator for basic and diluted earnings (loss) per
share--income (loss) from continuing operations........... $ 643 $(13,609)
======= ========
Denominator:
Denominator for basic earnings (loss) per share--weighted
average shares............................................ 47,668 47,658
Effects of dilutive securities:
Stock options and restricted stock...................... 708 --
------- --------
Denominator for diluted earnings (loss) per share--adjusted
weighted average shares and assumed conversions........... 48,376 47,658
======= ========
Earnings (loss) for continuing operations per share:
Basic and diluted....................................... $ 0.01 $ (0.29)
======= ========
During the period ended March 31, 2002, interest, net of tax, on
Convertible Notes in the amount of $1.2 million and shares of 7,319,000
that would be issued upon assumed conversion of these Convertible Notes
were excluded from the calculation of diluted loss per share due to the
antidilutive effect on loss per share. In 2003 and 2002, outstanding
options to purchase 5,403,000 and 6,995,000 common shares, respectively,
were excluded from the calculation of diluted earnings per share because
the effect would be antidilutive. In addition, 669,000 restricted stock
were excluded from the calculation of diluted earnings per share in 2002
because the effect would be antidilutive.
9
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT INFORMATION
The Company operates in three principal operating segments. The
Commercial Printing segment specializes in printing annual reports, car
brochures, brand marketing collateral, catalogs, maps, calendars and
financial communications. The Envelope segment manufactures customized and
stock envelopes for billing and remittance and direct mail advertising. The
Envelope segment is also a producer of specialty packaging products and a
manufacturer of stock products for the resale market. The Printed Office
Products segment produces customized and stock labels, mailers, and printed
business documents which are sold to small and mid-size businesses
generally through distributors of office products. Intercompany sales for
the three-month periods ended March 31, 2003 and 2002 were $3.1 million and
$6.8 million, respectively. These amounts are eliminated in consolidation
and excluded from reported net sales.
The following tables present certain business segment information for
the three months ended March 31, 2003 and 2002 (in thousands):
THREE MONTHS ENDED
MARCH 31
-----------------------
2003 2002
-------- --------
Net sales:
Envelope............................................ $179,071 $200,975
Commercial Printing................................. 197,948 190,754
Printed Office Products............................. 50,300 51,753
-------- --------
Total............................................... $427,319 $443,482
======== ========
Operating income (loss)(a):
Envelope............................................ $ 17,862 $ 7,412
Commercial Printing................................. 1,761 (3,901)
Printed Office Products............................. 3,790 3,561
Corporate........................................... (4,176) (10,008)
-------- --------
Total............................................... $ 19,237 $ (2,936)
======== ========
Restructuring, asset impairments and other charges:
Envelope............................................ $ -- $ 12,013
Commercial Printing................................. 825 1,007
Printed Office Products............................. (140) 880
Corporate........................................... -- 8,372
-------- --------
Total............................................... $ 685 $ 22,272
======== ========
- --------
(a) Operating income (loss) is net of all costs and expenses directly
related to the segment involved. Corporate expenses include corporate
general and administrative expenses, lease expense and other
miscellaneous expenses. Corporate expenses in 2002 include the loss
from the early extinguishment of debt.
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In March 2002, Mail-Well I Corporation ("Issuer" or "MWI"), the
Company's wholly-owned subsidiary, and the only direct subsidiary of the
Company, issued $350 million aggregate principal amount of 9 5/8% Senior
Notes ("Senior Notes") due in 2012. The Senior Notes are guaranteed by all
of the U.S. subsidiaries (the "Guarantor Subsidiaries") of MWI, all of
which are wholly owned, and by Mail-Well, Inc. ("Parent Guarantor"). The
guarantees are joint and several, full, complete and unconditional. There
are no material restrictions on the ability of the Guarantor Subsidiaries
to transfer funds to MWI in the form of cash dividends, loans or advances,
other than ordinary legal restrictions under corporate law, fraudulent
transfer and bankruptcy laws.
10
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
In December 1998, MWI issued $300 million aggregate principal amount of
8 3/4% Senior Subordinated Notes ("Senior Subordinated Notes") due in 2008.
The Senior Subordinated Notes are guaranteed by Guarantor Subsidiaries and
by the Parent Guarantor. The guarantees are joint and several, full,
complete and unconditional. There are no material restrictions on the
ability of the Guarantor Subsidiaries to transfer funds to MWI in the form
of cash dividends, loans or advances, other than ordinary legal
restrictions under corporate law, fraudulent transfer and bankruptcy laws.
The following condensed consolidating financial information illustrates
the composition of the Parent Guarantor, Issuer, and Guarantor
Subsidiaries. The Issuer and the Guarantor Subsidiaries comprise all of the
direct and indirect subsidiaries of the Parent Guarantor. Curtis 1000 Inc.
was, until it was divested in the first quarter of 2002, a subsidiary of
the Issuer and a guarantor of the Senior Subordinated Notes. Curtis 1000
Inc. was not at any time a guarantor of the Senior Notes. In order to
provide a coherent presentation in the following condensed consolidating
financial information, Curtis 1000 Inc.'s financial information is included
in the guarantor information for all periods prior to its divestiture in
February 2002. Management has determined that separate complete financial
statements would not provide additional material information that would be
useful in assessing the financial composition of the Guarantor
Subsidiaries.
Investments in subsidiaries are accounted for under the equity method,
wherein the investor company's share of earnings and income taxes
applicable to the assumed distribution of such earnings are included in net
income. In addition, investments increase in the amount of permanent
contributions to subsidiaries and decrease in the amount of distributions
from subsidiaries. The elimination entries remove the equity method
investment in subsidiaries and the equity in earnings of subsidiaries,
intercompany payables and receivables and other transactions between
subsidiaries.
11
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
March 31, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- ---------- ------------ --------- ------------
Current assets:
Cash and cash equivalents.......... $ -- $ (471) $ 815 $ -- $ 344
Accounts receivable, net........... -- 49,524 177,525 -- 227,049
Inventories, net................... -- 44,232 60,314 -- 104,546
Other current assets............... -- 32,531 15,694 -- 48,225
------- ---------- -------- --------- ----------
Total current assets............. -- 125,816 254,348 -- 380,164
Investment in subsidiaries........... 53,449 228,324 -- (281,773) --
Property, plant and equipment, net... -- 101,632 278,045 -- 379,677
Goodwill and other intangible assets,
net................................. -- 84,876 226,702 -- 311,578
Note receivable from subsidiaries.... -- 603,100 -- (603,100) --
Other assets, net.................... -- 7,482 31,369 -- 38,851
------- ---------- -------- --------- ----------
Total assets......................... $53,449 $1,151,230 $790,464 $(884,873) $1,110,270
======= ========== ======== ========= ==========
Current liabilities:
Accounts payable................... $ -- $ 31,263 $112,452 $ -- $ 143,715
Other current liabilities.......... -- 55,919 53,720 -- 109,639
Intercompany payable
(receivable)...................... -- 230,258 (230,258) -- --
Current portion of long-term
debt.............................. -- 393 1,800 -- 2,193
------- ---------- -------- --------- ----------
Total current liabilities........ -- 317,833 (62,286) -- 255,547
Long-term debt....................... -- 769,219 5,839 -- 775,058
Note payable to Issuer............... -- -- 603,100 (603,100) --
Deferred income tax (asset)
liability........................... -- (2,613) 11,654 -- 9,041
Other long-term liabilities.......... -- 13,342 3,833 -- 17,175
------- ---------- -------- --------- ----------
Total liabilities................ -- 1,097,781 562,140 (603,100) 1,056,821
Shareholders' equity................. 53,449 53,449 228,324 (281,773) 53,449
------- ---------- -------- --------- ----------
Total liabilities and shareholders'
equity.............................. $53,449 $1,151,230 $790,464 $(884,873) $1,110,270
======= ========== ======== ========= ==========
12
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
December 31, 2002
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- ---------- ------------ ----------- ------------
Current assets:
Cash and cash equivalents......... $ -- $ 1,957 $ 693 $ -- $ 2,650
Accounts receivable, net.......... -- 54,274 165,650 -- 219,924
Inventories, net.................. -- 42,805 60,728 -- 103,533
Net assets held for sale.......... -- -- 4,492 -- 4,492
Other current assets.............. -- 32,462 13,300 -- 45,762
------- ---------- --------- ----------- ----------
Total current assets............ -- 131,498 244,863 -- 376,361
Investment in subsidiaries.......... 42,768 417,049 -- (459,817) --
Property, plant and equipment,
net................................ -- 119,737 259,887 -- 379,624
Goodwill and other intangible
assets, net........................ -- 85,097 223,850 -- 308,947
Note receivable from subsidiaries... -- 603,100 -- (603,100) --
Other assets, net................... -- 34,030 8,405 -- 42,435
------- ---------- --------- ----------- ----------
Total assets........................ $42,768 $1,390,511 $ 737,005 $(1,062,917) $1,107,367
======= ========== ========= =========== ==========
Current liabilities:
Accounts payable.................. $ -- $ 41,057 $ 110,873 $ -- $ 151,930
Other current liabilities......... -- 68,128 53,012 -- 121,140
Intercompany payable
(receivable)..................... -- 507,381 (507,381) -- --
Current portion of long-term
debt............................. -- 970 1,991 -- 2,961
------- ---------- --------- ----------- ----------
Total current liabilities....... -- 617,536 (341,505) -- 276,031
Long-term debt...................... -- 754,983 5,955 -- 760,938
Note payable to Issuer.............. -- -- 603,100 (603,100) --
Deferred income tax liabilities
(assets)........................... -- (38,269) 48,605 -- 10,336
Other long-term liabilities......... -- 13,493 3,801 -- 17,294
------- ---------- --------- ----------- ----------
Total liabilities............... -- 1,347,743 319,956 (603,100) 1,064,599
Shareholders' equity................ 42,768 42,768 417,049 (459,817) 42,768
------- ---------- --------- ----------- ----------
Total liabilities and shareholders'
equity............................. $42,768 $1,390,511 $ 737,005 $(1,062,917) $1,107,367
======= ========== ========= =========== ==========
13
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Quarter Ended March 31, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- -------- ------------ -------- ------------
Net sales............................... $ -- $107,643 $319,676 $ -- $427,319
Cost of sales........................... -- 88,797 254,675 -- 343,472
------ -------- -------- -------- --------
Gross profit............................ -- 18,846 65,001 -- 83,847
Other operating expenses................ -- 15,713 48,212 -- 63,925
Restructuring and other charges......... -- -- 685 -- 685
------ -------- -------- -------- --------
Operating income (loss)................. -- 3,133 16,104 -- 19,237
Other expense (income):
Interest expense...................... -- 17,852 13,781 (13,654) 17,979
Other expense (income)................ -- (13,657) 134 13,654 131
------ -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and equity in
undistributed earnings of
subsidiaries........................... -- (1,062) 2,189 -- 1,127
Income tax benefit...................... -- (457) 941 -- 484
------ -------- -------- -------- --------
Income (loss) from continuing operations
before equity in undistributed earnings
of subsidiaries........................ -- (605) 1,248 -- 643
Equity in undistributed earnings of
subsidiaries........................... 3,143 1,248 -- (4,391) --
------ -------- -------- -------- --------
Income (loss) from continuing
operations............................. 3,143 643 1,248 (4,391) 643
Gain on disposal........................ -- (2,500) -- -- (2,500)
------ -------- -------- -------- --------
Net income (loss)....................... $3,143 $ 3,143 $ 1,248 $ (4,391) $ 3,143
====== ======== ======== ======== ========
14
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Quarter Ended March 31, 2002
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- --------- ------------ -------- ------------
Net sales............................. $ -- $ 140,874 $ 302,608 $ -- $ 443,482
Cost of sales......................... -- 113,495 241,958 -- 355,453
--------- --------- --------- -------- ---------
Gross profit.......................... -- 27,379 60,650 -- 88,029
Operating expenses:
Selling, administrative and other... 5 19,526 49,162 -- 68,693
Restructuring, asset impairments and
other charges...................... -- 21,159 1,113 -- 22,272
--------- --------- --------- -------- ---------
Operating income (loss)............... (5) (13,306) 10,375 -- (2,936)
Other (income) expense:
Interest expense.................... 1,738 17,662 14,222 (18,717) 14,905
Other expense (income).............. (1,977) (16,486) 38 18,717 292
--------- --------- --------- -------- ---------
Income (loss) from continuing
operations, before income taxes and
undistributed earnings of
subsidiaries......................... 234 (14,482) (3,885) -- (18,133)
Provision (benefit) for income
taxes................................ -- (5,672) 1,148 -- (4,524)
--------- --------- --------- -------- ---------
Income (loss) from continuing
operations, before cumulative effect
of a change in accounting principle
and undistributed earnings of
subsidiaries......................... 234 (8,810) (5,033) -- (13,609)
Equity in undistributed earnings of
subsidiaries......................... (133,590) (124,780) -- 258,370 --
--------- --------- --------- -------- ---------
Income from continuing operations
before cumulative effect of a change
in accounting principle.............. (133,356) (133,590) (5,033) 258,370 (13,609)
Loss from discontinued operations..... -- -- 7,999 -- 7,999
Cumulative effect of a change in
accounting principle................. -- -- 111,748 -- 111,748
--------- --------- --------- -------- ---------
Net income (loss)..................... $(133,356) $(133,590) $(124,780) $258,370 $(133,356)
========= ========= ========= ======== =========
15
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
Quarter Ended March 31, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED
--------- --------- ------------ ------------
Cash flows from (used in) operating
activities..................................... $ -- $ 1,760 $(15,200) $ (13,440)
Cash flows from investing activities:
Capital expenditures.......................... -- (809) (5,607) (6,416)
Proceeds from divestitures, net............... -- 3,864 -- 3,864
Intercompany advances......................... -- (20,902) 20,902 --
Proceeds from the sale of assets.............. -- -- 515 515
--------- --------- -------- ---------
Net cash provided by (used in) investing
activities................................... -- (17,847) 15,810 (2,037)
Cash flows from financing activities:
Proceeds from long-term debt.................. -- 485,122 -- 485,122
Repayments of long-term debt.................. -- (471,147) (668) (471,815)
Capitalized loan fees......................... -- (316) -- (316)
--------- --------- -------- ---------
Net cash provided by (used in) financing
activities................................... -- 13,659 (668) 12,991
Effect of exchange rate changes on cash......... -- -- 180 180
--------- --------- -------- ---------
Net change in cash and cash equivalents......... -- (2,428) 122 (2,306)
Balance at beginning of year.................... -- 1,957 693 2,650
--------- --------- -------- ---------
Balance at end of year.......................... $ -- $ (471) $ 815 $ 344
========= ========= ======== =========
16
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
Quarter Ended March 31, 2002
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- --------- ------------ -------- ------------
Cash flows from operating activities... $ 2,309 $ (4,658) $ 5,194 $ 4,841 $ 7,686
Cash flows from investing activities:
Acquisition costs, net of cash
acquired............................ -- (1,003) -- -- (1,003)
Capital expenditures................. -- (392) (10,948) -- (11,340)
Proceeds from divestitures, net...... -- 31,623 -- -- 31,623
Investment in subsidiaries........... (2,309) -- -- 2,309 --
Proceeds from sale of property, plant
& equipment......................... -- 34 26 -- 60
------- --------- -------- -------- ---------
Net cash provided by (used in)
investing activities................ (2,309) 30,262 (10,922) 2,309 19,340
Cash flows from financing activities:
Proceeds from issuance of long-term
debt................................ -- 569,000 -- -- 569,000
Repayments of long-term debt......... -- (444,615) (99,784) 85,039 (459,360)
Capitalized loan fees................ -- (12,037) -- -- (12,037)
Intercompany activity................ -- -- 92,189 (92,189) --
------- --------- -------- -------- ---------
Net cash provided by (used in)
financing activities................ -- 112,348 (7,595) (7,150) 97,603
Effect of exchange rate changes on cash
and cash equivalents.................. -- -- (324) -- (324)
Cash flows from discontinued
operations............................ -- -- (4,142) -- (4,142)
------- --------- -------- -------- ---------
Net increase (decrease) in cash and
cash equivalents...................... -- 137,952 (17,789) -- 120,163
Cash and cash equivalents at beginning
of year............................... -- (18,004) 20,018 -- 2,014
------- --------- -------- -------- ---------
Cash and cash equivalents at end of
year.................................. $ -- $ 119,948 $ 2,229 $ -- $ 122,177
======= ========= ======== ======== =========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CORPORATE OVERVIEW
We are one of North America's largest printing companies. Our mission
is to produce products and provide services that help our customers deliver
their messages more effectively. We are one company organized into three
business segments:
* Envelopes
* Commercial Printing
* Printed Office Products
We believe we are the world's largest manufacturer of envelopes. We
produce approximately 38 billion envelopes annually in our 39 envelope
manufacturing facilities located throughout the United States and Canada.
Approximately 84% of these envelopes are customized specifically for our
customers for use in billing and remittance, direct mail advertising and
specialty packaging. The remaining 16% are stock envelopes sold into the
resale market.
We are one of the largest commercial printers in the United States. We
operate 35 printing plants located strategically throughout the United
States and one in Canada. We specialize in high impact printing, in which
we print a wide range of premium printed products for national and regional
customers, including annual reports, car brochures and brand marketing
collateral, and general commercial printing for local and regional
customers.
We are also a leading domestic supplier of customized and stock labels,
mailers and printed business documents to small and mid-size businesses
generally through independent distributors of office products. Our printed
office products business operates 11 manufacturing plants strategically
located throughout the United States.
During 2002, we substantially completed an 18-month restructuring of
Mail-Well that began in June 2001. This restructuring included the
following:
* The consolidation of our best envelope equipment, expertise and
operational capabilities into 39 facilities, down from 50 in 2000.
* The consolidation of our printing operations in the Philadelphia
market into one facility, the closure of our operation in New York
City, and the consolidation of our web printing plant in
Indianapolis, Indiana into our web printing plants in St. Louis,
Missouri and Baltimore, Maryland.
* The consolidation of the Denver, Colorado and Clearwater, Florida
manufacturing facilities of our Printed Office Products segment.
* The sale of Curtis 1000, our prime label business and the filing
products division of our Envelope segment.
* The restructuring of our debt.
In March 2003, we sold certain of our digital graphics operations
completing all of our planned divestitures.
Paper is our most significant raw material. We purchase approximately
500,000 tons of paper annually for our businesses. Prices of uncoated
papers, which are the principal grades of paper used to manufacture
envelopes, increased 10% in the fourth quarter of 2002. Prices of coated
papers, which are used principally in commercial printing, remained flat in
2002. Historically, changes in paper pricing generally have not affected
the operating results of our commercial printing segment because we have
been able to pass on paper price increases to our customers. Paper pricing
has, however, impacted the operating margins of our envelope business. When
paper prices are rising, operating margins on our envelope products tend to
be lower because we generally are not able to increase our prices as quickly
18
as paper prices increase. We are experiencing this in 2003 as we have been
unable to increase the prices of our envelope products sufficiently to cover
the higher cost of uncoated papers.
CONSOLIDATED RESULTS OF OPERATIONS
In August 2002, the Company acquired the in-house printing and
fullfillment operations of American Express Company. The acquisition has
been accounted for as a purchase transaction, which impacts comparability
of our financial statements because the results of the acquired operations
are included in the consolidated results from the date acquired. Where
appropriate, we have noted the impact of this acquisition in the following
discussions of our results.
The general economic softness during the first quarter of 2003 affected
the sales and margins of our businesses. The demand for print advertising
and direct mail promotions remained depressed and the market for
traditional business forms continued to decline. We do not expect
significant increases in sales and margins until the markets we serve,
especially advertising and direct mail, recover. In the meantime, we will
continue to control our costs and balance production with the needs of our
customers.
The tables and discussions of sales and operating income that follow
present reported amounts as well as "ongoing" amounts. Ongoing sales
exclude sales of the filing products division of our Envelope segment that
was sold in August 2002 and the sales of certain digital graphics
operations of our Commercial Printing segment that were held for sale at
December 2002 and sold in March 2003. Ongoing operating income excludes the
operating income of the operations sold and restructuring and other charges
incurred in 2002 and during the first quarter of 2003. Since our planned
dispositions are now complete and we have substantially completed our
restructuring programs, we believe that this analysis provides the most
meaningful basis for an understanding of our results during the first
quarter of 2003.
NET SALES
QUARTER ENDED MARCH 31
-----------------------
2003 2002
-------- --------
(IN THOUSANDS)
Ongoing..................................................... $424,447 $421,418
Filing Products division............................... -- 18,527
Digital Graphics operations............................ 2,872 3,537
-------- --------
Reported.................................................... $427,319 $443,482
======== ========
Our reported sales during the first quarter of 2003 were $16.2 million,
or 4%, lower than during the first quarter of 2002. Excluding the sales of
the filing products division of Envelope sold in August 2002 and the
digital graphics operations that were sold in March 2003, sales of our
ongoing operations were up $3.0 million, or 1%. Significant factors
influencing the ongoing sales of our business segments during the first
quarter of 2003 were as follows:
* Envelope sales were down $3.4 million primarily due to lower sales of
higher value added direct mail envelopes. We believe that the
uncertainty leading up to the war in Iraq had an impact on our sales
of direct mail envelopes.
* Commercial Printing's sales increased $7.9 million due to the
acquisition in August 2002, which contributed sales of $9.2 million.
Excluding these sales, Commercial Printing's sales to its local
customers were down $1.3 million primarily due to the closure of its
printing facility in New York City.
* Commercial Printing's sales to its national and regional customers
were down only slightly.
* Sales of Printed Office Products decreased $1.5 million primarily due
to lower sales of business forms, especially continuous forms and
mailers.
19
RESTRUCTURING EXPENSES
As mentioned earlier, we have substantially completed the restructuring
programs initiated in June 2001 which continued during 2002. While we
currently have no further restructuring programs planned, we will respond
to the impact of the economic environment on our businesses by continuing
to evaluate our operations for improvement opportunities.
Restructuring expenses incurred during the first quarter of 2003 were
$0.7 million, all of which related to restructuring programs initiated
prior to 2003.
PRINTED
COMMERCIAL OFFICE
PRINTING PRODUCTS TOTAL
---------- -------- -----
(IN THOUSANDS)
Employee separation and related employee expenses........... $ 43 $(140) $(97)
Equipment moves............................................. 690 -- 690
Other exit costs............................................ 92 -- 92
---- ----- ----
Total................................................... $825 $(140) $685
==== ===== ====
COMMERCIAL PRINTING. In the fourth quarter of 2002, Commercial Printing
announced the closure of its web printing operation in Indianapolis and the
redeployment of the two web presses and related equipment in St. Louis and
Baltimore. A substantial portion of the cost to dismantle, move and
reinstall this equipment was incurred in the first quarter of 2003. We
anticipate additional charges in the second quarter as these moves are
completed.
The other charges also relate to plans initiated in the fourth quarter
of 2002 to right size our printing plants in the Northwest.
PRINTED OFFICE PRODUCTS. In the fourth quarter of 2002, Printed Office
Products closed its business forms plant in Clearwater and consolidated its
production in its Fairhope, Alabama plant. The employee separation and
related employee expenses paid as a result of this consolidation were less
than originally estimated.
OPERATING INCOME (LOSS)
QUARTER ENDED MARCH 31
----------------------
2003 2002
------- --------
(IN THOUSANDS)
Ongoing..................................................... $19,755 $ 17,113
Results of operations sold.............................. 167 2,223
Restructuring and other charges......................... (685) (22,272)
------- --------
Reported.................................................... $19,237 $ (2,936)
======= ========
Excluding the charges related to our restructuring and the operating
income of the filing products division and digital graphics operations that
have been sold, the operating income of our ongoing operations increased
$2.6 million in the first quarter of 2003 compared to the first quarter of
2002.
* Despite lower sales in the Envelope segment, ongoing operating income
was only slightly below the first quarter of 2002. Improvements in
productivity and lower administrative expenses offset much of the
impact of lower sales.
* Commercial Printing's ongoing operating income improved $5.3 million
from the first quarter of 2002. The improvement was attributed to the
acquisition completed in August 2002 and improvements that are the
result of the restructuring actions taken during the second half of
2002.
* The ongoing operating income of Printed Office Products was $0.8
million lower than the first quarter of 2002. The decline reflects
lower sales partially offset by savings from the plant consolidations
during 2002.
20
* Costs associated with corporate services increased $1.7 million over
the first quarter of 2002. Approximately $0.4 million of this
increase was associated with important employee training to implement
a new initiative to actively involve all of our employees in
improving service, quality, efficiency and innovation. We expect
these initiatives to improve results in the future.
INTEREST EXPENSE
QUARTER ENDED MARCH 31
-----------------------
2003 2002
------- -------
(IN THOUSANDS)
Total interest expense...................................... $17,979 $18,482
Less: Allocated to discontinued operations.................. -- (3,577)
------- -------
Reported interest expense................................... $17,979 $14,905
======= =======
Interest expense incurred during the first quarter of 2003 reflects our
average outstanding debt during the quarter of $794.9 million and a
weighted average interest rate of 8.42% compared to the average outstanding
debt of $946.8 during the first quarter of 2002 and a weighted average
interest rate of 6.89%. The increase in the weighted average interest rate
was due to the issuance of $350 million of 9 5/8% senior notes on March 13,
2002 the proceeds of which were used primarily to repay bank debt that
accrued interest at a lower variable rate. Also, in November 2002, our 5%
convertible subordinated notes were redeemed.
Reported interest expense in the first quarter of 2003 was higher than
in the first quarter of 2002 due primarily to the higher weighted average
interest rate in 2003 and the allocation of interest expense to
discontinued operations in 2002. The amount of interest expense allocated
to discontinued operations exceeded the actual reduction in interest
expense attributable to the divestitures of the discontinued operations. In
2002, a portion of our interest expense was allocated to discontinued
operations based on the net assets of the discontinued operations relative
to the net asset of the Company as required by generally accepted
accounting principles. The net asset amounts used to allocate interest
expense exceeded the actual net proceeds received from the dispositions of
the discontinued operations.
INCOME TAXES
QUARTER ENDED
MARCH 31
------------------
2003 2002
---- -------
(IN THOUSANDS)
Provision (benefit) for income taxes........................ $484 $(4,524)
Effective tax rate.......................................... 43% 25%
The effective tax rate for 2003 is estimated to be 43%. The effective
tax rate for 2002 was lower than 2003 by eighteen percentage points. This
difference is primarily due to lower estimated pre-tax income in 2002 that
increased the impact of nondeductible permanent differences on the overall
effective rate.
INCOME (LOSS) FROM CONTINUING OPERATIONS AND INCOME (LOSS) PER
SHARE--DILUTED
QUARTER ENDED
MARCH 31
--------------------
2003 2002
----- --------
(IN THOUSANDS)
Income (loss) from continuing operations.................... $ 643 $(13,609)
Income (loss) from continuing operations per share.......... $0.01 $ (0.29)
Income from continuing operations increased $14.3 million in the first
quarter of 2003 compared to the first quarter of 2002. This improvement is
due to the acquisition completed in August 2002,
21
improved operating performance, lower overhead, and significantly lower
restructuring and other charges. Interest and taxes were higher in the
first quarter of 2003 than in 2002. In addition, results in the first
quarter of 2002 included a $7.7 million loss on the early extinguishment of
debt. This loss, which had been reported as an extraordinary item in 2002,
was reclassified as a loss from continuing operations in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections.
LOSS (GAIN) ON DISPOSAL OF DISCONTINUED OPERATIONS
During the first quarter of 2003, we recorded a gain on the disposal of
discontinued operations in the amount of $2.5 million. This gain was the
result of an adjustment made to the tax impact of the disposition of our
prime label business, which was sold in May 2002. The data required to
determine the full tax impact of this transaction was not available until
2003. The Company will finalize this estimate upon filing the final tax
return.
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE--DILUTED
QUARTER ENDED MARCH 31
----------------------
2003 2002
------ ---------
(IN THOUSANDS)
Net income (loss)........................................... $3,143 $(133,356)
Net income (loss) per share................................. $ 0.06 $ (2.80)
Net income and net income per share in the first quarter of 2003
reflect the improvement in income from continuing operations as well as the
gain recorded on the disposal of discontinued operations. The net loss and
net loss per share reported in the first quarter of 2002 reflected the loss
from continuing operations, a $8.0 million loss on disposal of discontinued
operations and the $111.7 goodwill impairment charge recorded as a
cumulative effect of an accounting change as a result of the adoption of
SFAS No. 142, Goodwill and Other Intangible Assets.
BUSINESS SEGMENTS
ENVELOPE
SALES
QUARTER ENDED MARCH 31
-----------------------
2003 2002
-------- --------
(IN THOUSANDS)
Ongoing..................................................... $179,071 $182,448
Filing Products division................................ -- 18,527
-------- --------
Reported.................................................... $179,071 $200,975
======== ========
OPERATING INCOME
QUARTER ENDED MARCH 31
----------------------
2003 2002
------- --------
(IN THOUSANDS)
Ongoing..................................................... $17,862 $ 18,017
Filing Products division................................ -- 1,408
Restructuring........................................... -- (12,013)
------- --------
Reported.................................................... $17,862 $ 7,412
======= ========
Reported sales of the Envelope segment in the first quarter of 2003
were $179.1 million, $21.9 million below sales in the first quarter of
2002. Excluding sales of the filing products division, which
22
was sold in August 2002, the sales decline was $3.4 million, or 2%. This
sales decline was due to competitive pricing pressures and lower sales of
higher value added products, partially offset by a favorable foreign
currency impact on the sales of our Canadian operations. Overall unit
volume was slightly higher than in the first quarter of 2002. We sold more
units of transactional (e.g., bill and remittance) envelopes during the
first quarter of 2003 than during the first quarter of 2002. This increase
offset a decline in units sold to our direct mail and merchant and office
products customers. Direct mail promotional spending was down especially
towards the end of the quarter due to the uncertainty about the war in
Iraq.
Reported operating income of the Envelope segment in the first quarter
of 2003 was $17.9 million, $10.5 million higher than the first quarter of
2002. Excluding the operating income of the filing products division and
restructuring expenses, operating income was slightly below the first
quarter of 2002. The impact of lower sales was partially mitigated by
improvements in manufacturing efficiencies and lower administrative
expenses.
COMMERCIAL PRINTING
SALES
QUARTER ENDED MARCH 31
-----------------------
2003 2002
-------- --------
(IN THOUSANDS)
Ongoing..................................................... $195,076 $187,217
Digital Graphics division............................... 2,872 3,537
-------- --------
Reported.................................................... $197,948 $190,754
======== ========
OPERATING INCOME (LOSS)
QUARTER ENDED MARCH 31
----------------------
2003 2002
------ -------
(IN THOUSANDS)
Ongoing..................................................... $2,419 $(2,851)
Digital Graphics division............................... 167 (43)
Restructuring........................................... (825) (1,007)
------ -------
Reported.................................................... $1,761 $(3,901)
====== =======
Reported sales of the Commercial Printing segment in the first quarter
of 2003 were $197.9 million, $7.2 million, or 4%, higher than sales in the
first quarter of 2002. Excluding sales of the digital graphics operations,
which were sold in February 2003, the sales increase was $7.9 million, or
4%. Sales of our high-impact printing to our national and regional
customers were only slightly lower in the first quarter of 2003 compared to
the first quarter of 2002. Excluding sales of $9.2 million of the
acquisition completed in August 2002, sales to our local commercial
printing customers were about $1.3 million below the first quarter of 2002.
This decline can be attributed to the closure of our operation in New York
City in September 2002, which had sales of $3.8 million in the first
quarter of 2002.
Reported operating income of the Commercial Printing segment in the
first quarter of 2003 was $1.8 million, an improvement of $5.7 million over
the operating loss reported in the first quarter of 2002. Excluding the
operating income of the digital graphics operations and restructuring
expenses, operating income was $2.4 million, an improvement of $5.3 million
from the first quarter of 2002. The improvement in ongoing operating income
can be attributed to the acquisition completed in August 2002 and
improvements that are the result of the restructuring actions taken during
the second half of 2002. Despite competitive pricing pressures, overall
contribution margin has improved slightly due to improvements in
manufacturing efficiencies. Lower manufacturing overhead and administrative
expenses are primarily the result of the closure of our operation in New
York City, the consolidation of our web operation in Indianapolis with our
web operations in St. Louis and Baltimore, and other cost control programs.
Selling expenses were also lower in the quarter compared to the first
quarter of
23
2002 as a result of the consolidation of several sales offices and a
reorganization of our sales management.
PRINTED OFFICE PRODUCTS
SALES
QUARTER ENDED MARCH 31
-----------------------
2003 2002
------- -------
(IN THOUSANDS)
Reported.................................................... $50,300 $51,753
OPERATING INCOME
QUARTER ENDED MARCH 31
-----------------------
2003 2002
------- -------
(IN THOUSANDS)
Ongoing..................................................... $3,650 $4,441
Restructuring........................................... 140 (880)
------ ------
Reported.................................................... $3,790 $3,561
====== ======
Sales of Printed Office Products in the first quarter of 2003 were
$50.3 million, $1.5 million below sales in the first quarter of 2002. This
sales decline was due primarily to lower sales of business forms,
especially continuous forms and mailers, and sales lost as a result of the
closure of the Denver manufacturing facility. Sales of our label products
were comparable to the first quarter of 2002.
Operating income of Printed Office Products in the first quarter of
2003 was $3.8 million, $0.2 million higher than the first quarter of 2002.
Excluding restructuring expenses, operating income was $3.7 million, $0.8
million lower than the first quarter of 2002. The decline in operating
income was due to the decline in sales, lower margins due to competitive
pricing pressures, and increases in employee benefit costs partially offset
by lower fixed manufacturing and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, our outstanding debt had increased $13.4 million to
$777.3 million from the balance of $763.9 million at December 31, 2002. We
used $13.5 million in operations during the first quarter of 2003 primarily
as a result of an increase in accounts receivable and a reduction in
accounts payable. In the first quarter of 2002, operations generated $7.7
million of cash flow.
Capital expenditures were $6.4 million in the first quarter of 2003
compared to $11.3 million in the first quarter of 2002.
The $3.9 million of net proceeds received from the sale of the digital
graphics operations in March 2003 were applied to our revolving bank debt.
The following table summarizes our cash payment obligations as of March
31, 2003 by year:
TOTAL CASH
LONG-TERM DEBT OPERATING LEASES OBLIGATIONS
-------------- ---------------- -----------
Year 1..................... $ 2,193 $ 31,492 $ 33,685
Year 2..................... 1,283 26,035 27,318
Year 3..................... 117,179 22,133 139,312
Year 4..................... 843 18,067 18,910
Year 5..................... 908 13,190 14,098
Thereafter................. 654,845 15,862 670,707
-------- -------- --------
Total...................... $777,251 $126,779 $904,030
======== ======== ========
24
At March 31, 2003, we had outstanding letters of credit of
approximately $24.5 million related to performance and payment guarantees.
In addition, we have issued letters of credit of $2.3 million as credit
enhancements in conjunction with other debt. Based on our experience with
these arrangements, we do not believe that any obligations that may arise
will be significant.
Our credit ratings as of March 31, 2003 were as follows:
SENIOR SENIOR SENIOR
SECURED UNSECURED SUBORDINATED
RATING AGENCY DEBT DEBT DEBT LAST UPDATE
- ------------- ------- --------- ------------ -----------
Standard & Poor's..... BB- BB- B July-02
Moody's............... B1 B1 B3 February-02
The terms of our existing debt do not have any rating triggers, and we
do not believe that our current ratings will impact our ability to raise
additional capital.
We expect to be able to fund our operations, capital expenditures and
debt and other contractual commitments within the next year from internally
generated cash flow and funds available under our senior credit facility.
At March 31, 2003, we had $102.2 million of unused credit available under
this credit facility.
SEASONALITY AND ENVIRONMENT
Our commercial printing business experiences seasonal variations. Our
revenues from annual reports are generally concentrated from February
through April. Revenues associated with holiday catalogs and automobile
brochures tend to be concentrated from July through October, and calendars
from May to September. As a result of these seasonal variations, we are at
or near capacity in some facilities at certain times during these periods.
Several consumer direct market segments served by our envelope business
and certain segments of the direct mail market, experience seasonality,
with a higher percentage of the volume of products sold to these markets
occurring during the fourth quarter of the year. This seasonality is due to
the increase in sales to the direct mail market due to holiday purchases.
Seasonality is offset by the diversity of our other products and markets,
which are not materially affected by seasonal conditions.
Environmental matters have not had a material financial impact on our
historical operations and are not expected to have a material impact in the
future.
NEW ACCOUNTING STANDARDS
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. Among other provisions, SFAS No. 145 rescinds SFAS
No. 4, Reporting Gains and Losses from Extinguishment of Debt. Accordingly,
gains or losses from extinguishment of debt shall not be reported as
extraordinary items unless the extinguishment qualifies as an extraordinary
item under the criteria of Accounting Principles Board ("APB") Opinion No.
30, Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. Gains or losses from extinguishment of
debt that do not meet the criteria of APB No. 30 should be reclassified to
income from continuing operations in all prior periods presented. The
Company adopted the provisions of SFAS No. 145 as of January 1, 2003 and
reclassified a loss from the early extinguishment of debt that was reported
as an extraordinary item recorded in the first quarter of 2002 into income
from continuing operations.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Interpretation No. 46, Consolidation of Variable Interest Entities,
an Interpretation of Accounting Research Bulletin No. 51 ("Interpretation
46"). Interpretation 46 requires the consolidation of variable interest
entities in which an enterprise absorbs a majority of the entity's expected
losses, receives a majority of the entity's expected residual returns, or
both, as a result of ownership, contractual or other financial interest in
25
the entity. Currently, entities are generally consolidated by an enterprise
that has a controlling financial interest through ownership of a majority
voting interest in the entity.
Interpretation 46 currently applies to variable interest entities
created after January 31, 2003 and to variable interest entities in which a
company obtains an interest after that date. Since we had no such interests
arising after January 31, 2003, this interpretation has had no impact on
our consolidated results of operations or consolidated balance sheet to
date.
Beginning in the third quarter of 2003, we must apply Interpretation 46
to all interests in variable interest entities existing prior to January
31, 2003. We are the lessee in a series of leases covering our leased
machinery and equipment. The lessors are financing entities that we do not
consolidate. These operating and synthetic leases do not contain a
fixed-price purchase option and we generally are not at risk for losses. We
currently believe that it is unlikely that we will be required to
consolidate the underlying entities upon application of the interpretation.
AVAILABLE INFORMATION
Our Internet address is: www.mailwell.com. We make available free of
charge through our website our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as
soon as reasonably practicable after such documents are filed
electronically with the Securities and Exchange Commission. In addition,
our earnings conference calls and presentations to securities analysts are
web cast live via our website.
LEGAL PROCEEDINGS
From time to time we may be involved in claims or lawsuits that arise
in the ordinary course of business. Accruals for claims or lawsuits have
been provided for to the extent that losses are deemed probable and
estimable. Although the ultimate outcome of these claims or lawsuits cannot
be ascertained, on the basis of present information and advice received
from counsel, it is our opinion that the disposition or ultimate
determination of such claims or lawsuits will not have a material adverse
effect on us.
FORWARD-LOOKING INFORMATION
This report, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations," may contain various
"forward-looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934, that are based on management's belief and
assumptions, as well as information currently available to management.
Although we believe that the expectations reflected in any such
forward-looking statements are reasonable, we can give no assurance that
such expectations will prove to be correct. Any such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, our actual financial results, performance or condition may
vary materially from those expected. Some of the key factors that may have
a direct bearing on our actual financial results, performance or condition
are as follows:
* Paper and other raw material costs
* The degree and nature of competition
* The ability to achieve productivity and cost savings goals
* The success of certain strategic initiatives, including "Total
Company Selling" strategy
* Postage rates and other changes in the direct-mail industry
* Interest rates and foreign currency exchange rates
* Ability to obtain additional or alternative financing
26
* General economic conditions
* General labor conditions
* The impact of the Internet and other electronic media on the demand
for envelopes and printed material
* Other factors as described in our most recent annual report on Form 10-K
under the heading "Forward Looking Information"
In view of such uncertainties, investors are cautioned not to place
undue reliance on these forward-looking statements. We do not assume any
obligation to update these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks such as changes in interest and foreign
currency exchange rates, which may adversely affect results of operations
and financial position. Risks from interest and foreign currency exchange
rate fluctuations are managed through normal operating and financing
activities. We do not utilize derivatives for speculative purposes, nor did
we hedge interest rate exposure through the use of swaps and options or
foreign exchange exposure through the use of forward contracts as of
December 31, 2002. However, the Board of Directors have given management
authority to engage in interest rate swaps and we are currently considering
this option.
Exposure to market risk from changes in interest rates relates
primarily to our variable rate debt obligations. The interest on this debt
is the London Interbank Offered Rate ("LIBOR") plus a margin. At March 31,
2003, we had variable rate debt outstanding of $118.1 million. A 1%
increase in LIBOR on the maximum amount of debt subject to variable
interest rates, which is $301.8 million, would increase our interest
expense by $3.0 million and reduce our net income by approximately $1.8
million.
We have operations in Canada, and thus are exposed to market risk for
changes in foreign currency exchange rates of the Canadian dollar.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our chief executive
officer and our chief financial officer, after evaluating the effectiveness
of our "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the
"Evaluation Date") within 90 days before the filing date of this report,
have concluded that as of the Evaluation Date, our disclosure controls and
procedures were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made known to
them by others within those entities.
CHANGES IN INTERNAL CONTROLS. There were no significant changes in our
internal controls or procedures or in other factors that could significantly
affect our disclosure controls and procedures subsequent to the Evaluation
Date.
27
PART IV
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of Mail-Well Corporation--
incorporated by reference from Mail-Well I Corporation's
Form S-4 filed March 15, 1999 (Reg. No. 333-74409).
3.2 Certificate of Amendment of Certificate of Incorporation of
Mail-Well Corporation--incorporated by reference from
Mail-Well I Corporation's Form S-4 filed March 15, 1999
(Reg. No. 333-74409).
3.3 Certificate of Correction Filed to Correct Certain Errors in
the Certificate of Amendment of Mail-Well I Corporation
Filed in the Office of the Secretary of State of Delaware on
September 11, 1995--incorporated by reference from Mail-Well
I Corporation's Form S-4 filed March 15, 1999 (Reg. No.
333-74409).
3.4 Certificate of Change of Registered Agent and Registered
Office--incorporated by reference from Mail-Well I
Corporation's Form S-4 filed March 15, 1999 (Reg. No.
333-74409).
3.5 Bylaws of Mail-Well I Corporation--incorporated by reference
from Mail-Well I Corporation's Form S-4 filed March 15, 1999
(Reg. No. 333-74409).
4.1 Indenture dated as of December 16, 1998 between Mail-Well I
Corporation and State Street Bank and Trust Company, as
Trustee, relating to Mail-Well I Corporation's $300,000,000
aggregate principal amount of 8 3/4% Senior Subordinated
Notes due 2008--incorporated by reference from Exhibit 4.4
to Mail-Well, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998, File No. 1-12551.
4.2 Form of Senior Subordinated Note--incorporated by reference
from Exhibit 4.5 to Mail-Well, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998, File No. 1-12551.
4.3 Indenture dated as of March 13, 2002 between Mail-Well I
Corporation and State Street Bank and Trust Company, as
Trustee relating to Mail-Well I Corporation's $350,000,000
aggregate principal amount of 9 5/8% Senior Notes due
2012--incorporated by reference to Exhibit 10.30 to
Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002.
4.4 Form of Senior Note and Guarantee relating to Mail-Well I
Corporation's $350,000,000 aggregate principal amount 9 5/8%
due 2012--incorporated by reference to Exhibit 10.31 to
Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002.
10.1 Form of Indemnity Agreement between Mail-Well, Inc. and each
of its officers and directors--incorporated by reference
from Exhibit 10.17 of Mail-Well, Inc.'s Registration
Statement on Form S-1 dated March 25, 1994.
10.2 Form of Indemnity Agreement between Mail-Well I Corporation
and each of its officers and directors--incorporated by
reference from Exhibit 10.18 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated March 25, 1994.
10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as
of February 23, 1994 and related Employee Stock Ownership
Plan Trust Agreement--incorporated by reference from Exhibit
10.19 of Mail-Well, Inc.'s Registration Statement on Form
S-1 dated March 25, 1994.
10.4 Form of M-W Corp. 401(k) Savings Retirement Plan--incorporated
by reference from Exhibit 10.20 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated March 25, 1994.
28
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.5 Form of Mail-Well, Inc. Incentive Stock Option Agreement--incorporated
by reference from Exhibit 10.22 of Mail-Well, Inc.'s Registration
Statement on Form S-1 dated March 25, 1994.
10.6 Form of Mail-Well, Inc. Nonqualified Stock Option Agreement--
incorporated by reference from Exhibit 10.23 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated March 25, 1994.
10.7 1997 Non-Qualified Stock Option Agreement--incorporated by reference
from Exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the quarter ended
March 31, 1997.
10.8 Mail-Well, Inc. 1998 Incentive Stock Option Plan Incentive Stock Option
Agreement--incorporated by reference from Exhibit 10.59 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
10.9 Mail-Well, Inc. 2001 Long-Term Equity Incentive Plan--incorporated by
reference from the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2001.
10.10 Form of Non-Qualified Stock Option Agreement under 2001 Long-Term
Equity Incentive Plan--incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
10.11 Form of Incentive Stock Option Agreement under 2001 Long-Term Equity
Incentive Plan--incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001.
10.12 Form of Restricted Stock Award Agreement under 2001 Long-Term Equity
Incentive Plan--incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001.
10.13 Purchase Agreement dated March 8, 2002, between Mail-Well I
Corporation, and Credit Suisse First Boston, UBS Warburg LLC, Banc of
America Securities LLC, U.S. Bancorp Piper Jaffray Inc., First Union
Securities, Inc., and Scotia Capital (USA) Inc., as Initial Purchasers,
relating to Mail-Well I Corporation's $350,000,000 aggregate principal
amount of 9 5/8% Senior Notes due 2012--incorporated by reference to
Exhibit 10.30 to Mail-Well I Corporation's Registration Statement on
Form S-4 filed June 11, 2002.
10.14 Registration Rights Agreement dated March 13, 2002, between Mail-Well I
Corporation, and Credit Suisse First Boston, UBS Warburg LLC, Banc of
America Securities LLC, U.S. Bancorp Piper Jaffray Inc., First Union
Securities, Inc., and Scotia Capital (USA) Inc., as Initial Purchasers,
relating to Mail-Well I Corporation's $350,000,000 aggregate principal
amount of 9 5/8% Senior Notes due 2012--incorporated by reference to
Exhibit 10.32 to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2002.
10.15 Amended and Restated Credit Agreement dated June 27, 2002, among the
Company, Mail-Well I Corporation, the domestic subsidiaries of
Mail-Well I Corporation named in the agreement, the financial
institutions from time to time parties thereto, and Bank of America,
N.A., as administrative agent--incorporated by reference to Exhibit
10.27 of Mail-Well, Inc.'s Form 10-Q for the quarter ended June 30,
2002.
10.16 Amended and Restated Security Agreement dated June 27, 2002, among the
Company, Mail-Well I Corporation, the domestic subsidiaries of
Mail-Well I Corporation named in the agreement, and Bank of America,
N.A., as agent--incorporated by reference to Exhibit 10.28 of
Mail-Well, Inc.'s Form 10-Q for the quarter ended June 30, 2002.
10.17 Amendment No. 1 to Amended and Restated Credit Agreement, dated
September 27, 2002 among Mail-Well, Inc., Mail-Well I Corporation,
certain subsidiaries of Mail-Well I, the
29
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
lenders under the Amended and Restated Credit Agreement, and Bank of
America, N.A., as administrative agent for the lenders--incorporated
by reference to Exhibit 10.36 of Mail-Well I Corporation's Amendment
No. 2 to Registration Statement on Form S-4 filed October 8, 2002.
10.18 Second Amended and Restated Equipment Lease dated as of August 6, 2002
between Wells Fargo Bank Northwest, National Association, as trustee
under MW 1997-1 Trust, and Mail-Well I Corporation--incorporated by
reference to Exhibit 10.26 of Mail-Well, Inc.'s Form 10-Q for the
quarter ended September 30, 2002.
10.19 Second Amended and Restated Guaranty Agreement dated as of August 6,
2002, among Mail-Well I Corporation as Lessee, certain of its
subsidiaries and Mail-Well, Inc. as Guarantors, Fleet Capital
Corporation as Agent, and the Trust Certificate Purchasers named
therein--incorporated by reference to Exhibit 10.27 of Mail-Well,
Inc.'s Form 10-Q for the quarter ended September 30, 2002.
10.20 Second Amended and Restated Participation Agreement dated as of
August 6, 2002, among Mail-Well I Corporation as Lessee, Fleet Capital
Corporation as Arranger and Agent, and the Trust Certificate
Purchasers named therein--incorporated by reference to Exhibit 10.28
of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30,
2002.
10.21 Amendment Agreement No. 1 dated as of September 25, 2002, among
Mail-Well I Corporation as Lessee, certain of its subsidiaries and
Mail-Well, Inc. as Guarantors, Fleet Capital Corporation as Agent,
and the Trust Certificate Purchasers named therein--incorporated by
reference to Exhibit 10.29 of Mail-Well, Inc.'s Form 10-Q for the
quarter ended September 30, 2002.
10.22 Amendment No. 2 to Amended and Restated Credit Agreement, dated
December 27, 2002, among the Company, Mail-Well I Corporation,
certain subsidiaries of Mail-Well I, the lenders under the Amended
and Restated Credit Agreement, and Bank of America, N.A., as
administrative agent for the lenders--incorporated by reference to
Exhibit 99.1 of the Company's Current Report on Form 8-K filed
January 8, 2003.
10.23 Amendment No. 1 to Amended and Restated Security Agreement, dated
December 27, 2002, among the Company, Mail-Well I Corporation, certain
subsidiaries of Mail-Well I, and Bank of America, N.A., as agent--
incorporated by reference to Exhibit 99.2 of the Company's Current
Report on Form 8-K filed January 8, 2003.
10.24 Employment and Executive Severance Agreement dated as of March 10,
2003, between the Company and Paul V. Reilly.
10.25 Form of Executive Severance Agreement entered into between the Company
and each of the following: Michel Salbaing, Gordon Griffiths, Brian
Hairston, Keith Pratt, William Huffman, D. Robert Meyer and Mark
Zoeller.
99.1* Certification of Periodic Report by Paul V. Reilly, President and
Chief Executive Officer, pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
99.2* Certification of Periodic Report by Michel P. Salbaing, Senior Vice
President--Finance and Chief Financial Officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
- -------
* Furnished herewith.
30
(b) REPORTS ON FORM 8-K
1. Current report filed under Item 5 of Form 8-K dated as of January 8,
2003 in connection with Amendment No. 2 to Amended and Restated
Credit Agreement, and Amendment No. 1 to Amended and Restated
Security Agreement, each dated as of December 27, 2002.
2. Current report filed under Item 5 of Form 8-K dated as of February
10, 2003 in connection with the accompanying pro forma condensed
consolidated income statements.
3. Current report filed under Item 5 of Form 8-K dated as of February
10, 2003 in connection with the Company's earnings release for the
fourth quarter.
4. Current report filed under Item 5 of Form 8-K dated as of February
19, 2003 in connection with the script of the Company's investor
conference call held on February 10, 2003.
5. Current report filed under Item 9 of Form 8-K dated as of March 20,
2003 in connection with certifications of the Company's CEO and CFO
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Englewood, state of Colorado, on May 5, 2003.
MAIL-WELL, INC.
By: /s/ PAUL V. REILLY
-------------------------------------------
Paul V. Reilly, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ MICHEL P. SALBAING
-------------------------------------------
Michel P. Salbaing, Senior Vice President--
Finance and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
32
I, Paul V. Reilly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mail-Well, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 5, 2003
/s/ PAUL V. REILLY
---------------------------------------------
Chief Executive Officer
33
I, Michel P. Salbaing, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mail-Well, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 5, 2003
/s/ MICHEL P. SALBAING
---------------------------------------------
Chief Financial Officer
34