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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
COMMISSION FILE NUMBER 1-12551
------------------------
MAIL-WELL, INC.
(Exact name of Registrant as specified in its charter.)
COLORADO 84-1250533
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8310 S. VALLEY HIGHWAY, #400 80112
ENGLEWOOD, CO
(Address of principal executive offices) (Zip Code)
303-790-8023
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of July 31, 2003 was $76,193,820.
As of July 31, 2003 the Registrant had 48,386,626 shares of Common
Stock, $0.01 par value, outstanding.
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TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements........................................ 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 32
Item 4. Controls and Procedures..................................... 32
PART II--OTHER INFORMATION
Item 5. Submission of Matters to a Vote of Securities Holders....... 33
PART IV
Item 6. Exhibits and Reports on Form 8-K............................ 34
i
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAIL-WELL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
JUNE 30, 2003
(UNAUDITED) DECEMBER 31, 2002
------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 746 $ 2,650
Accounts receivable, net................................ 200,013 219,924
Inventories, net........................................ 101,486 103,533
Net assets held for sale................................ -- 4,492
Other current assets.................................... 31,795 45,762
---------- ----------
TOTAL CURRENT ASSETS................................ 334,040 376,361
Property, plant and equipment, net.......................... 396,489 379,624
Goodwill.................................................... 298,014 290,361
Other intangible assets, net................................ 17,723 18,586
Other assets, net........................................... 40,341 42,435
---------- ----------
TOTAL ASSETS................................................ $1,086,607 $1,107,367
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 123,028 $ 151,930
Accrued compensation and related liabilities............ 49,095 53,292
Other current liabilities............................... 62,050 67,848
Current maturities of long-term debt.................... 2,819 2,961
---------- ----------
TOTAL CURRENT LIABILITIES........................... 236,992 276,031
Long-term debt.............................................. 765,245 760,938
Deferred income taxes....................................... 5,245 10,336
Other liabilities........................................... 17,108 17,294
---------- ----------
TOTAL LIABILITIES........................................... 1,024,590 1,064,599
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 25,000 shares
authorized, none issued............................... -- --
Common stock, $0.01 par value; 100,000,000 shares
authorized, 48,386,626 and 48,337,031 shares issued
and outstanding as of June 30, 2003 and December 31,
2002, respectively.................................... 484 483
Paid-in capital......................................... 213,988 213,826
Retained deficit........................................ (155,034) (155,481)
Deferred compensation................................... (2,319) (2,471)
Accumulated other comprehensive income (loss)........... 4,898 (13,589)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY.......................... 62,017 42,768
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $1,086,607 $1,107,367
========== ==========
See notes to condensed consolidated financial statements.
1
MAIL-WELL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except earnings per share amounts)
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------------- -------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales............................... $407,826 $420,967 $ 835,146 $ 864,449
Cost of sales........................... 328,917 342,129 672,350 697,582
-------- -------- --------- ---------
Gross profit............................ 78,909 78,838 162,796 166,867
Operating expenses:
Selling, general and
administrative.................... 62,747 69,048 126,226 137,239
Amortization of intangibles......... 418 514 863 1,016
Loss from the early extinguishment
of debt........................... -- 8,718 -- 16,463
Impairment loss on assets held for
sale.............................. -- 8,871 -- 8,871
Impairment on operations formerly
held for sale..................... -- 10,407 -- 10,407
Restructuring and other charges..... 119 9,273 804 23,800
-------- -------- --------- ---------
Operating income (loss)................. 15,625 (27,993) 34,903 (30,929)
Other expense:
Interest expense.................... 18,119 18,973 36,333 33,878
Other............................... 355 45 487 337
-------- -------- --------- ---------
Loss from continuing operations before
income taxes and cumulative effect of
a change in accounting principle...... (2,849) (47,011) (1,917) (65,144)
Income tax benefit...................... (1,168) (8,942) (767) (13,466)
-------- -------- --------- ---------
Loss from continuing operations before
cumulative effect of a change in
accounting principle.................. (1,681) (38,069) (1,150) (51,678)
Loss (gain) on disposal of discontinued
operations............................ 581 153 (1,919) 8,152
Cumulative effect of a change in
accounting principle.................. -- -- 322 111,748
-------- -------- --------- ---------
Net income (loss)....................... $ (2,262) $(38,222) $ 447 $(171,578)
======== ======== ========= =========
Earnings (loss) per share--basic and
diluted:
Continuing operations............... $ (0.04) $ (0.80) $ (0.02) $ (1.08)
Discontinued operations............. (0.01) -- 0.04 (0.17)
Cumulative effect of a change in
accounting principle.............. -- -- (0.01) (2.35)
-------- -------- --------- ---------
Earnings (loss) per share--basic and
diluted............................... $ (0.05) $ (0.80) $ 0.01 $ (3.60)
======== ======== ========= =========
Weighted average shares--basic.......... 47,679 47,668 47,672 47,663
Weighted average shares--diluted........ 47,679 47,668 48,207 47,663
See notes to condensed consolidated financial statements.
2
MAIL-WELL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
SIX MONTHS ENDED JUNE 30
---------------------------
2003 2002
--------- ---------
Cash flows from operating activities:
Loss from continuing operations........................... $ (1,150) $ (51,678)
Adjustments to reconcile loss from continuing operations
to net cash provided by operating activities:
Depreciation......................................... 23,347 23,021
Amortization......................................... 2,815 4,060
Noncash portion of restructuring, impairment and
other charges....................................... -- 30,257
Deferred income tax benefit.......................... (6,270) (10,404)
Loss on disposal of assets........................... 581 535
Other noncash charges, net........................... 846 69
Changes in operating assets and liabilities, excluding the
effects of acquisitions and dispositions:
Accounts receivable.................................. 26,150 33,112
Inventories.......................................... 4,070 1,576
Accounts payable and accrued compensation............ (37,009) (3,302)
Accrued taxes........................................ 8,808 (7,253)
Other working capital changes........................ (2,634) (6,600)
Other, net................................................ 605 958
--------- ---------
Net cash provided by operating activities........... 20,159 14,351
Cash flows from investing activities:
Acquisitions.......................................... -- (1,021)
Capital expenditures.................................. (13,010) (21,409)
Proceeds from divestitures, net....................... 3,864 96,887
Proceeds from sales of property, plant and
equipment........................................... 627 6,053
--------- ---------
Net cash (used in) provided by investing
activities........................................ (8,519) 80,510
Cash flows from financing activities:
Proceeds from issuance of common stock................ 16 18
Proceeds from issuance of long-term debt.............. 947,205 706,288
Repayments of long-term debt.......................... (960,947) (629,114)
Capitalized loan fees................................. (437) (16,574)
--------- ---------
Net cash (used in) provided by financing
activities........................................ (14,163) 60,618
Effect of exchange rate changes on cash and cash
equivalents................................................ 619 (129)
Cash flows from discontinued operations..................... -- (8,550)
--------- ---------
Net (decrease) increase in cash and cash
equivalents....................................... (1,904) 146,800
Cash and cash equivalents at beginning of year.............. 2,650 894
--------- ---------
Cash and cash equivalents at end of period.................. $ 746 $ 147,694
========= =========
See notes to condensed consolidated financial statements.
3
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of
Mail-Well, Inc. and subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and six months ended June 30, 2003 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2003.
The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the
information and footnote disclosures required by generally accepted
accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 2002.
The Company adopted the Financial Accounting Standards Board
Interpretation ("FASB") No. 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin No. 51,
("Interpretation 46") retroactive to January 1, 2003. The first quarter
Form 10-Q dated March 31, 2003 will be restated prospectively. The
implementation of Interpretation 46 did not have an impact on earnings per
share from continuing operations the first quarter of 2003.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets, on January 1, 2002
and completed its determination of the goodwill impairment of the
Commercial Printing segment in the fourth quarter of 2002. The transitional
impairment of $111.7 million was recorded as the cumulative effect of a
change in accounting principle as of January 1, 2002 and required the
restatement of the condensed consolidated statement of operations for the
six months ended June 30, 2002.
The Company adopted SFAS No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,
on January 1, 2003. The provisions of SFAS No. 145 required the
reclassification of the loss from the early extinguishment of debt that was
recorded as an extraordinary item in 2002 into income from continuing
operations and the restatement of the condensed consolidated statements of
operations for the three and six months ended June 30, 2002.
The table below is a reconciliation of loss per share for the six
months ended June 30, 2002 as originally reported and the loss per share as
restated.
JUNE 30, 2002
AS ORIGINALLY IMPACT OF IMPACT OF JUNE 30, 2002
REPORTED SFAS 142 SFAS 145 RESTATED
------------- --------- --------- -------------
Loss per share--basic and diluted*:
Continuing operations........................ $(0.87) $ -- $(0.22) $(1.08)
Discontinued operations...................... (0.17) -- -- (0.17)
Extraordinary items.......................... (0.22) -- 0.22 --
Cumulative effect of a change in accounting
principle.................................. -- (2.35) -- (2.35)
------ ------ ------ ------
Loss per share............................... $(1.26) $(2.35) $ -- $(3.60)
====== ====== ====== ======
- ---------------
* The individual components of loss per share may not equal the total loss per share due to rounding.
4
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation 46 which requires the
consolidation of variable interest entities ("VIE") in which an enterprise
absorbs a majority of the entity's expected losses, receives a majority of
the entity's expected residual returns, or both, as a result of ownership,
contractual or other financial interest in the entity. Currently, entities
are generally consolidated by the enterprise that has a controlling
financial interest through ownership of a majority voting interest in the
entity.
The Company leases printing equipment from a bankruptcy-remote trust
(the "Trust") under an operating lease. At the end of the lease, the Company
has the option to purchase the equipment for the aggregate outstanding loan
balance of the Trust or to direct the sale of the equipment to a third
party. If the Company were to direct the sale of the equipment, it has
guaranteed the Trust that the proceeds from the sale will be at least 60.9%
of the original fair value of the leased assets which could be as much as
$11.6 million. If the sales proceeds exceed the guaranteed value of the
leased assets, the Company retains the excess.
The Company began consolidating this Trust effective January 1, 2003,
because it believes it is the primary beneficiary of this VIE under
Interpretation 46. As of the adoption date, the Company consolidated
equipment valued at $18.1 million, net of accumulated depreciation, and
debt of $18.5 million and recorded a charge of $0.3 million, net of tax, as
a cumulative effect of a change in accounting principle. Rent expense
reported for the six months ended June 30, 2003, decreased $1.2 million,
while depreciation expense and interest expense increased by $1.3 million
and $0.5 million, respectively.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging
activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003, and should be applied
prospectively, with the exception of certain SFAS No. 133 implementation
issues that were effective for all fiscal quarters prior to June 15, 2003.
This statement does not impact the financial statements of the Company.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 applies specifically to a number of
financial instruments that companies have historically presented within
their financial statements either as equity or between the liabilities
section and the equity section, rather than as liabilities. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. This statement does not impact the
financial statements of the Company.
3. STOCK-BASED COMPENSATION
Stock options and other stock-based compensation awards are accounted
for using the intrinsic value method prescribed by Accounting Principles
Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees. This
method requires compensation expense to be recognized for the excess of the
quoted market price of the stock at the grant date or the measurement date
over the amount an employee must pay to acquire the stock.
5
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. STOCK-BASED COMPENSATION (CONTINUED)
The following table illustrates the pro forma effect of net income
(loss) and earnings (loss) per share if the Company had applied the fair
value recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, for the three and six months ended June 30, 2003 and 2002 (in
thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------- ----------------------
2003 2002 2003 2002
--------- --------- ------ ---------
Net income (loss):
As reported...................... $ (2,262) $ (38,222) $ 447 $(171,578)
Pro forma........................ (2,818) (39,110) (1,407) (174,539)
Earnings (loss) per share--basic and
diluted:
As reported...................... $ (0.05) $ (0.80) $ 0.01 $ (3.60)
Pro forma........................ (0.06) (0.82) (0.03) (3.66)
The effect on pro forma net income (loss), earnings (loss) per
share--basic and earnings (loss) per share--diluted of expensing the
estimated fair value of stock options is not necessarily representative of
the effect on reported earnings for future years due to the vesting period
of the stock options and the potential for issuance of additional stock
options in future years.
4. ACQUISITION
In August 2002, the Company acquired the in-house printing and
fulfillment operations of American Express Company, located in Minneapolis,
Minnesota, for $1.3 million. This acquisition has been accounted for as a
purchase; accordingly, its assets and liabilities have been recorded at
estimated fair value with the excess of the purchase price over the
estimated fair value recorded as goodwill. The consolidated financial
statements reflect the operations of the acquired business since August
2002. Goodwill recorded as a result of this acquisition was $0.8 million.
Additional consideration will be paid if annual revenues during each year
of the five year period commencing on January 1, 2003 total a specified
amount. This may result in additional consideration of up to $17.5
million. Sales included in the three and six months ended June 30, 2003
were $20.8 and $30.0 million, respectively.
5. ASSETS HELD FOR SALE
The Company sold the filing products division of the Envelope segment
in August 2002 and certain digital graphics operations of the Commercial
Printing segment in March 2003. The following table presents the sales and
operating income of these operations included in the condensed consolidated
statements of operations for the three and six months ended June 30, 2003
and 2002 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
2003 2002 2003 2002
------ ------- ------ -------
Sales........................................ -- $21,228 $2,872 $43,291
Operating income............................. -- $ 1,241 $ 167 $ 2,606
6
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. SUPPLEMENTAL BALANCE SHEET INFORMATION
INVENTORIES
The Company's inventories by major category are as follows (in
thousands):
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Raw materials.......................................... $ 31,002 $ 32,515
Work in process........................................ 21,857 25,832
Finished goods......................................... 54,685 50,854
-------- --------
107,544 109,201
Reserves............................................... (6,058) (5,668)
-------- --------
$101,486 $103,533
======== ========
PROPERTY, PLANT AND EQUIPMENT
The Company's investment in property, plant and equipment consists of
the following (in thousands):
JUNE 30, DECEMBER 31,
2003 2002
--------- ------------
Land and land improvements............................. $ 20,316 $ 19,529
Buildings and improvements............................. 110,376 105,646
Machinery and equipment................................ 490,674 463,896
Furniture and fixtures................................. 15,785 15,178
Construction in progress............................... 11,771 5,510
--------- ---------
648,922 609,759
Accumulated depreciation............................... (252,433) (230,135)
--------- ---------
$ 396,489 $ 379,624
========= =========
The December 31, 2002 balances do not include the impact of the
implementation of Interpretation 46 (see Note 2). Property, plant and
equipment at June 30, 2003 includes $16.8 million of assets in a VIE that
was consolidated on January 1, 2003.
COMPREHENSIVE INCOME (LOSS)
A summary of the comprehensive income (loss) is as follows (in
thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- -------------------------
2003 2002 2003 2002
-------- --------- ------- ---------
Net income (loss)...................... $(2,262) $(38,222) $ 447 $(171,578)
Other comprehensive income:
Currency translation adjustment, net... 11,099 5,779 18,487 4,431
------- -------- ------- ---------
Comprehensive income (loss)............. $ 8,837 $(32,443) $18,934 $(167,147)
======= ======== ======= =========
7
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. LONG-TERM DEBT
At June 30, 2003 and December 31, 2002, long-term debt consisted of the
following (in thousands):
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Senior Secured Credit Facility, due 2005............... $ 90,438 $101,932
Senior Notes, due 2012................................. 350,000 350,000
Senior Subordinated Notes, due 2008.................... 300,000 300,000
Other.................................................. 27,626 11,967
-------- --------
768,064 763,899
Less current maturities................................ (2,819) (2,961)
-------- --------
Long-term debt...................................... $765,245 $760,938
======== ========
The December 31, 2002 balances do not include the impact of the
implementation of Interpretation 46 (see Note 2). Long-term debt at June
30, 2003 includes debt of $17.8 million of a VIE that was consolidated on
January 1, 2003.
During 2002, the Company expensed deferred financing costs in
connection with the early payment of the term loans of the bank credit
facility which was replaced with a new asset based credit facility in June
2002. These write-offs of $8.7 million and $16.5 million are reported as
loss from the early extinguishment of debt in the condensed consolidated
statement of operations for the three and six months ended June 30, 2002,
respectively.
The Senior Notes and the Senior Subordinated Notes are guaranteed by
Mail-Well, Inc. and its U.S. subsidiaries (the "Guarantor Subsidiaries")
all of which are wholly owned. The guarantees are joint and several, full,
complete and unconditional. There are no material restrictions on the
ability of the Guarantor Subsidiaries to transfer funds to the issuing
subsidiary in the form of cash dividends, loans or advances, other than
ordinary legal restrictions under corporate law, fraudulent transfer and
bankruptcy laws.
As of June 30, 2003, the Company was in compliance with all of the
covenants of its various debt agreements.
8. RESTRUCTURING AND OTHER CHARGES
The Company has completed the restructuring programs initiated in June
2001 which continued during 2002. The restructuring expenses related to
these programs recorded during the six-month period ended June 30, 2003
were $0.8 million. These expenses were as follows (in thousands):
PRINTED
COMMERCIAL OFFICE
PRINTING PRODUCTS TOTAL
---------- -------- -----
Employee separation and related expenses.................... $ 43 $(140) $(97)
Equipment moves............................................. 865 -- 865
Other exit costs............................................ 92 (56) 36
------ ----- ----
Total................................................... $1,000 $(196) $804
====== ===== ====
COMMERCIAL PRINTING. In the fourth quarter of 2002, Commercial Printing
announced the closure of its web printing operation in Indianapolis,
Indiana and the redeployment of the two web presses and
8
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. RESTRUCTURING AND OTHER CHARGES (CONTINUED)
related equipment to St. Louis, Missouri and Baltimore, Maryland. A
substantial portion of the cost to dismantle, move and reinstall this
equipment was incurred during the six months ended June 30, 2003.
The other restructuring charges incurred relate to plans initiated in
the fourth quarter of 2002 to right size printing plants in the Northwest.
PRINTED OFFICE PRODUCTS. In the fourth quarter of 2002, Printed Office
Products closed its business forms plant in Clearwater, Florida and
consolidated its production in its Fairhope, Alabama plant. The employee
separation and related expenses paid as a result of this consolidation were
less than originally estimated.
A summary of the activity charged to the 2002 restructuring liability
during the six months ended June 30, 2003 is as follows (in thousands):
PRINTED
COMMERCIAL OFFICE
PRINTING PRODUCTS TOTAL
---------- -------- -------
Balance, December 31, 2002.......................... $ 3,990 $ 653 $ 4,643
Payments for severance.......................... (189) (149) (338)
Payments for lease termination and property exit
costs......................................... (1,437) (40) (1,477)
Payments for other exit costs................... (163) (268) (431)
Reversal of unused accrual...................... -- (16) (16)
------- ----- -------
Balance, June 30, 2003.............................. $ 2,201 $ 180 $ 2,381
======= ===== =======
A summary of the activity charged to the 2001 restructuring liability
during the six months ended June 30, 2003 is as follows (in thousands):
COMMERCIAL
ENVELOPE PRINTING TOTAL
-------- ---------- ------
Balance, December 31, 2002............................ $2,518 $ 449 $2,967
Payments for severance............................ (286) -- (286)
Payments for lease termination and property exit
costs........................................... (556) (377) (933)
------ ----- ------
Balance, June 30, 2003................................ $1,676 $ 72 $1,748
====== ===== ======
9. DISCONTINUED OPERATIONS
During the first quarter of 2003, a gain was recorded on the disposal
of discontinued operations in the amount of $2.5 million. This gain was the
result of a change in the estimated tax impact of the disposition of the
Company's prime label business, which was sold in May 2002. The gain was
reduced by $0.6 million in the second quarter based on the completion of
the tax return.
9
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
10. EARNINGS PER SHARE
Basic earnings per share exclude dilution and are computed by dividing
net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share reflect the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. A
reconciliation of the amounts included in the computation of basic earnings
(loss) per share and diluted earnings (loss) per share is as follows (in
thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2003 2002 2003 2002
------- -------- ------- --------
Numerator:
Numerator for basic and diluted loss per
share--loss from continuing operations...... $(1,681) $(38,069) $(1,150) $(51,678)
======= ======== ======= ========
Denominator:
Denominator for basic loss per share--weighted
average shares.............................. 47,679 47,668 47,672 47,663
Effects of dilutive securities:
Stock options and restricted stock........ -- -- 535 --
------- -------- ------- --------
Denominator for diluted loss per share--
adjusted weighted average shares and
assumed conversions......................... 47,679 47,668 48,207 47,663
======= ======== ======= ========
Loss for continuing operations per share:
Basic and diluted......................... $ (0.04) $ (0.80) $ (0.02) $ (1.08)
======= ======== ======= ========
During the three and six months ended June 30, 2002, interest, net of
tax, on Convertible Notes in the amount of $1.2 million and $2.4 million,
respectively, and shares of 7,319,000 that would have been issued upon
assumed conversion of these Convertible Notes were excluded from the
calculation of diluted loss per share due to the antidilutive effect on loss
per share. In addition, the outstanding options and shares of restricted
stock in 2003 and 2002 in the amount of 6,887,000 and 6,773,000 common
shares, respectively, were excluded from the calculation of diluted loss per
share because the effect would be antidilutive.
11. SEGMENT INFORMATION
The Company operates in three principal operating segments. The
Commercial Printing segment specializes in high impact printing, which
includes a wide range of premium printed products such as annual reports,
car brochures and brand marketing collateral for national and regional
customers, and general commercial printing for local and regional
customers. The Envelope segment manufactures customized and stock envelopes
for billing and remittance and direct mail advertising. The Envelope
segment is also a producer of specialty packaging products and a
manufacturer of stock products for the resale market. The Printed Office
Products segment produces customized and stock labels, mailers, and printed
business documents which are sold to small and mid-size businesses
generally through distributors of office products. Intercompany sales for
the three and six months ended June 30, 2003 were $4.4 million and $7.6
million, respectively. Intercompany sales for the three and six months
ended June 30, 2002 were $2.5 million and $9.4 million, respectively. These
amounts are eliminated in consolidation and excluded from reported net
sales.
10
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
11. SEGMENT INFORMATION (CONTINUED)
The following tables present certain business segment information for
the three and six months ended June 30, 2003 and 2002 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net sales:
Envelope............................ $170,831 $195,168 $349,902 $396,143
Commercial Printing................. 186,652 173,727 384,601 364,482
Printed Office Products............. 50,343 52,072 100,643 103,824
-------- -------- -------- --------
Total............................... $407,826 $420,967 $835,146 $864,449
======== ======== ======== ========
Operating income (loss)(a):
Envelope............................ $ 13,897 $ 11,453 $ 31,892 $ 18,865
Commercial Printing................. 2,693 (8,062) 4,689 (11,963)
Printed Office Products............. 4,772 5,114 8,624 8,675
Corporate........................... (5,737) (36,498) (10,302) (46,506)
-------- -------- -------- --------
Total............................... $ 15,625 $(27,993) $ 34,903 $(30,929)
======== ======== ======== ========
Restructuring, impairments and other
charges:
Envelope............................ $ -- $ 7,545 $ -- $ 19,559
Commercial Printing................. 176 1,448 1,000 2,455
Printed Office Products............. (57) 168 (196) 1,047
Corporate........................... -- 28,108 -- 36,480
-------- -------- -------- --------
Total............................... $ 119 $ 37,269 $ 804 $ 59,541
======== ======== ======== ========
- ---------------
(a) Operating income (loss) is net of all costs and expenses directly
related to the segment involved. Corporate expenses are net of certain
supplier rebates and include corporate general and administrative
expenses, lease expense and other miscellaneous expenses. Corporate
expenses in 2002 include the loss from the early extinguishment of
debt, impairment loss on assets held for sale and impairment loss on
operations formerly held for sale.
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In March 2002, Mail-Well I Corporation ("Issuer" or "MWI"), the
Company's wholly-owned subsidiary, and the only direct subsidiary of the
Company, issued $350 million aggregate principal amount of 9 5/8% Senior
Notes ("Senior Notes") due in 2012. The Senior Notes are guaranteed by all
of the subsidiaries (the "Guarantor Subsidiaries") of MWI, all of
which are wholly owned, and by Mail-Well, Inc. ("Parent Guarantor"). The
guarantees are joint and several, full, complete and unconditional. There
are no material restrictions on the ability of the Guarantor Subsidiaries
to transfer funds to MWI in the form of cash dividends, loans or advances,
other than ordinary legal restrictions under corporate law, fraudulent
transfer and bankruptcy laws.
In December 1998, MWI issued $300 million aggregate principal amount of
8 3/4% Senior Subordinated Notes ("Senior Subordinated Notes") due in 2008.
The Senior Subordinated Notes are guaranteed by Guarantor Subsidiaries and
by the Parent Guarantor. The guarantees are joint and several, full,
complete and unconditional. There are no material restrictions on the
ability of the Guarantor Subsidiaries to transfer funds to MWI in the form
of cash dividends, loans or advances, other than ordinary legal restrictions
under corporate law, fraudulent transfer and bankruptcy laws.
11
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
The following condensed consolidating financial information illustrates
the composition of the Parent Guarantor, Issuer, and Guarantor
Subsidiaries. The Issuer and the Guarantor Subsidiaries comprise all of the
direct and indirect subsidiaries of the Parent Guarantor. Management has
determined that separate complete financial statements would not provide
additional material information that would be useful in assessing the
financial composition of the Guarantor Subsidiaries.
Investments in subsidiaries are accounted for under the equity method,
wherein the investor company's share of earnings and income taxes
applicable to the assumed distribution of such earnings are included in net
income. In addition, investments increase in the amount of permanent
contributions to subsidiaries and decrease in the amount of distributions
from subsidiaries. The elimination entries remove the equity method
investment in subsidiaries and the equity in earnings of subsidiaries,
intercompany payables and receivables and other transactions between
subsidiaries.
12
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
June 30, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- ---------- ------------ --------- ------------
Current assets:
Cash and cash equivalents.......... $ -- $ (341) $ 1,087 $ -- $ 746
Accounts receivable, net........... -- 47,176 152,837 -- 200,013
Inventories, net................... -- 41,578 59,908 -- 101,486
Other current assets............... -- 23,209 8,586 -- 31,795
------- ---------- -------- --------- ----------
Total current assets............. -- 111,622 222,418 -- 334,040
Investment in subsidiaries........... 62,017 228,490 -- (290,507) --
Property, plant and equipment, net... -- 98,585 297,904 -- 396,489
Goodwill and other intangible assets,
net................................. -- 84,999 230,738 -- 315,737
Note receivable from subsidiaries.... -- 603,100 -- (603,100) --
Other assets, net.................... -- 31,825 8,516 -- 40,341
------- ---------- -------- --------- ----------
Total assets......................... $62,017 $1,158,621 $759,576 $(893,607) $1,086,607
======= ========== ======== ========= ==========
Current liabilities:
Accounts payable................... $ -- $ 16,661 $106,367 $ -- $ 123,028
Other current liabilities.......... -- 59,137 52,008 -- 111,145
Intercompany payable
(receivable)...................... -- 256,697 (256,697) -- --
Current portion of long-term
debt.............................. -- 1,767 1,052 -- 2,819
------- ---------- -------- --------- ----------
Total current liabilities........ -- 334,262 (97,270) -- 236,992
Long-term debt....................... -- 759,606 5,639 -- 765,245
Note payable to Issuer............... -- -- 603,100 (603,100) --
Deferred income tax (asset)
liability........................... -- (10,362) 15,607 -- 5,245
Other long-term liabilities.......... -- 13,098 4,010 -- 17,108
------- ---------- -------- --------- ----------
Total liabilities................ -- 1,096,604 531,086 (603,100) 1,024,590
Shareholders' equity................. 62,017 62,017 228,490 (290,507) 62,017
------- ---------- -------- --------- ----------
Total liabilities and shareholders'
equity.............................. $62,017 $1,158,621 $759,576 $(893,607) $1,086,607
======= ========== ======== ========= ==========
13
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
December 31, 2002
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- ---------- ------------ ----------- ------------
Current assets:
Cash and cash equivalents......... $ -- $ 1,957 $ 693 $ -- $ 2,650
Accounts receivable, net.......... -- 54,274 165,650 -- 219,924
Inventories, net.................. -- 42,805 60,728 -- 103,533
Net assets held for sale.......... -- -- 4,492 -- 4,492
Other current assets.............. -- 32,462 13,300 -- 45,762
------- ---------- --------- ----------- ----------
Total current assets............ -- 131,498 244,863 -- 376,361
Investment in subsidiaries.......... 42,768 417,049 -- (459,817) --
Property, plant and equipment,
net................................ -- 119,737 259,887 -- 379,624
Goodwill and other intangible
assets, net........................ -- 85,097 223,850 -- 308,947
Note receivable from subsidiaries... -- 603,100 -- (603,100) --
Other assets, net................... -- 34,030 8,405 -- 42,435
------- ---------- --------- ----------- ----------
Total assets........................ $42,768 $1,390,511 $ 737,005 $(1,062,917) $1,107,367
======= ========== ========= =========== ==========
Current liabilities:
Accounts payable.................. $ -- $ 41,057 $ 110,873 $ -- $ 151,930
Other current liabilities......... -- 68,128 53,012 -- 121,140
Intercompany payable
(receivable)..................... -- 507,381 (507,381) -- --
Current portion of long-term
debt............................. -- 970 1,991 -- 2,961
------- ---------- --------- ----------- ----------
Total current liabilities....... -- 617,536 (341,505) -- 276,031
Long-term debt...................... -- 754,983 5,955 -- 760,938
Note payable to Issuer.............. -- -- 603,100 (603,100) --
Deferred income tax liabilities
(assets)........................... -- (38,269) 48,605 -- 10,336
Other long-term liabilities......... -- 13,493 3,801 -- 17,294
------- ---------- --------- ----------- ----------
Total liabilities............... -- 1,347,743 319,956 (603,100) 1,064,599
Shareholders' equity................ 42,768 42,768 417,049 (459,817) 42,768
------- ---------- --------- ----------- ----------
Total liabilities and shareholders'
equity............................. $42,768 $1,390,511 $ 737,005 $(1,062,917) $1,107,367
======= ========== ========= =========== ==========
14
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended June 30, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- -------- ------------ -------- ------------
Net sales............................... $ -- $101,904 $305,922 $ -- $407,826
Cost of sales........................... -- 85,035 243,882 -- 328,917
------- -------- -------- -------- --------
Gross profit............................ -- 16,869 62,040 -- 78,909
Other operating expenses................ -- 18,054 45,111 -- 63,165
Restructuring and other charges......... -- -- 119 -- 119
------- -------- -------- -------- --------
Operating income (loss)................. -- (1,185) 16,810 -- 15,625
Other expense (income):
Interest expense...................... -- 18,172 13,650 (13,703) 18,119
Other expense (income)................ -- (13,724) 376 13,703 355
------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and equity in
undistributed earnings of
subsidiaries........................... -- (5,633) 2,784 -- (2,849)
Income tax benefit...................... -- (2,206) 1,038 -- (1,168)
------- -------- -------- -------- --------
Income (loss) from continuing operations
before equity in undistributed earnings
of subsidiaries........................ -- (3,427) 1,746 -- (1,681)
Equity in undistributed earnings of
subsidiaries........................... (2,262) 1,746 -- 516 --
------- -------- -------- -------- --------
Income (loss) from continuing
operations............................. (2,262) (1,681) 1,746 516 643
Loss on disposal........................ -- 581 -- -- 581
------- -------- -------- -------- --------
Net income (loss)....................... $(2,262) $ (2,262) $ 1,746 $ 516 $ (2,262)
======= ======== ======== ======== ========
15
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended June 30, 2002
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- -------- ------------ -------- ------------
Net sales............................... $ -- $127,798 $293,169 $ -- $420,967
Cost of sales........................... -- 108,069 234,059 -- 342,129
-------- -------- -------- -------- --------
Gross profit............................ -- 19,729 59,110 -- 78,838
Operating expenses:
Selling, administrative and other..... 29 20,496 49,037 -- 69,562
Restructuring, asset impairments and
other charges........................ -- 16,024 21,246 -- 37,269
-------- -------- -------- -------- --------
Operating income (loss)................. (29) (16,791) (11,173) -- (27,993)
Other (income) expense:
Interest expense...................... 1,262 21,718 12,664 (16,671) 18,973
Other expense (income)................ (1,500) (15,201) 75 16,671 45
-------- -------- -------- -------- --------
Income (loss) from continuing
operations, before income taxes and
undistributed earnings of
subsidiaries........................... 209 (23,308) (23,912) -- (47,011)
Provision (benefit) for income taxes.... -- (7,043) (1,899) -- (8,942)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations, before cumulative effect of
a change in accounting principle and
undistributed earnings of
subsidiaries........................... 209 (16,265) (22,013) -- (38,069)
Equity in undistributed earnings of
subsidiaries........................... (38,431) (22,166) -- 60,597 --
-------- -------- -------- -------- --------
Income from continuing operations before
cumulative effect of a change in
accounting principle................... (38,222) (38,431) (22,013) 60,597 (38,069)
Loss from discontinued operations....... -- -- 153 -- 153
-------- -------- -------- -------- --------
Net income (loss)....................... $(38,222) $(38,431) $(22,166) $ 60,597 $(38,222)
======== ======== ======== ======== ========
16
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended June 30, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- -------- ------------ -------- ------------
Net sales............................... $ -- $209,547 $625,599 $ -- $835,146
Cost of sales........................... -- 175,019 497,331 -- 672,350
------ -------- -------- -------- --------
Gross profit............................ -- 34,528 128,268 -- 162,796
Other operating expenses................ -- 33,884 93,205 -- 127,089
Restructuring and other charges......... -- -- 804 -- 804
------ -------- -------- -------- --------
Operating income (loss)................. -- 644 34,259 -- 34,903
Other expense (income):
Interest expense...................... -- 36,259 27,430 (27,356) 36,333
Other expense (income)................ -- (27,381) 512 27,356 487
------ -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and equity in
undistributed earnings of
subsidiaries........................... -- (8,234) 6,317 -- (1,917)
Income tax benefit...................... -- (3,294) 2,527 -- (767)
------ -------- -------- -------- --------
Income (loss) from continuing operations
before equity in undistributed earnings
of subsidiaries........................ -- (4,940) 3,790 -- (1,150)
Equity in undistributed earnings of
subsidiaries........................... 447 3,790 -- (4,237) --
------ -------- -------- -------- --------
Income (loss) from continuing
operations............................. 447 (1,150) 3,790 (4,237) (1,150)
Gain on disposal........................ -- (1,919) -- -- (1,919)
Cumulative effect of a change in
accounting principle................... -- 322 -- -- 322
------ -------- -------- -------- --------
Net income (loss)....................... $ 447 $ 447 $ 3,790 $ (4,237) $ 447
====== ======== ======== ======== ========
17
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended June 30, 2002
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- --------- ------------ -------- ------------
Net sales............................. $ -- $ 268,672 $ 595,777 $ -- $ 864,449
Cost of sales......................... -- 221,564 476,018 -- 697,582
--------- --------- --------- -------- ---------
Gross profit.......................... -- 47,108 119,759 -- 166,867
Operating expenses:
Selling, administrative and other... 34 40,022 98,119 -- 138,255
Restructuring, asset impairments and
other charges...................... -- 37,183 22,358 -- 59,541
--------- --------- --------- -------- ---------
Operating income (loss)............... (34) (30,097) (798) -- (30,929)
Other (income) expense:
Interest expense.................... 3,000 39,380 26,886 (35,388) 33,878
Other expense (income).............. (3,477) (31,687) 113 35,388 337
--------- --------- --------- -------- ---------
Income (loss) from continuing
operations, before income taxes and
undistributed earnings of
subsidiaries......................... 443 (37,790) (27,797) -- (65,144)
Provision (benefit) for income
taxes................................ -- (12,715) (751) -- (13,466)
--------- --------- --------- -------- ---------
Income (loss) from continuing
operations, before cumulative effect
of a change in accounting principle
and undistributed earnings of
subsidiaries......................... 443 (25,075) (27,046) -- (51,678)
Equity in undistributed earnings of
subsidiaries......................... (172,021) (146,946) -- 318,967 --
--------- --------- --------- -------- ---------
Income from continuing operations
before cumulative effect of a change
in accounting principle.............. (171,578) (172,021) (27,046) 318,967 (51,678)
Loss from discontinued operations..... -- -- 8,152 -- 8,152
Cumulative effect of a change in
accounting principle................. -- -- 111,748 -- 111,748
--------- --------- --------- -------- ---------
Net income (loss)..................... $(171,578) $(172,021) $(146,946) $318,967 $(171,578)
========= ========= ========= ======== =========
18
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
June 30, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED
--------- --------- ------------ ------------
Cash flows from (used in) operating
activities..................................... $ -- $ (17,035) $ 37,194 $ 20,159
Cash flows from investing activities:
Capital expenditures.......................... -- (976) (12,034) (13,010)
Proceeds from divestitures, net............... -- 3,864 -- 3,864
Intercompany advances......................... (16) 25,257 (25,241) --
Proceeds from the sale of assets.............. -- -- 627 627
--------- --------- -------- ---------
Net cash provided by (used in) investing
activities................................... (16) 28,145 (36,648) (8,519)
Cash flows from financing activities:
Proceeds from the issuance of common stock.... 16 -- -- 16
Proceeds from long-term debt.................. -- 947,205 -- 947,205
Repayments of long-term debt.................. -- (960,176) (771) (960,947)
Capitalized loan fees......................... -- (437) -- (437)
--------- --------- -------- ---------
Net cash provided by (used in) financing
activities................................... 16 (13,408) (771) 14,163
Effect of exchange rate changes on cash......... -- -- 619 619
--------- --------- -------- ---------
Net change in cash and cash equivalents......... -- (2,298) 394 (1,904)
Balance at beginning of year.................... -- 1,957 693 2,650
--------- --------- -------- ---------
Balance at end of year.......................... $ -- $ (341) $ 1,087 $ 746
========= ========= ======== =========
19
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
June 30, 2002
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- --------- ------------ -------- ------------
Cash flows from operating activities... $(18) $ (12,105) $ 111,513 $(85,039) $ 14,351
Cash flows from investing activities:
Acquisition costs, net of cash
acquired............................ -- (1,021) -- -- (1,021)
Capital expenditures................. -- (1,814) (19,595) -- (21,409)
Proceeds from divestitures, net...... -- 96,887 -- -- 96,887
Proceeds from sale of property, plant
& equipment......................... -- 5,940 113 -- 6,053
---- --------- --------- -------- ---------
Net cash provided by (used in)
investing activities................ -- 99,992 (19,482) -- 80,510
Cash flows from financing activities:
Proceeds from issuance of common
stock............................... 18 -- -- -- 18
Proceeds from issuance of long-term
debt................................ -- 706,288 -- -- 706,228
Repayments of long-term debt......... -- (612,629) (101,524) 85,039 (629,114)
Capitalized loan fees................ -- (16,574) -- -- (16,574)
---- --------- --------- -------- ---------
Net cash provided by (used in)
financing activities................ -- 77,085 (101,524) 85,039 60,618
Effect of exchange rate changes on cash
and cash equivalents.................. -- -- (129) -- (129)
Cash flows from discontinued
operations............................ -- -- (8,550) -- (8,550)
---- --------- --------- -------- ---------
Net increase (decrease) in cash and
cash equivalents...................... -- 164,972 (18,172) -- 146,800
Cash and cash equivalents at beginning
of year............................... -- (18,004) 18,898 -- 894
---- --------- --------- -------- ---------
Cash and cash equivalents at end of
year.................................. $ -- $ 146,968 $ 726 $ -- $ 147,694
==== ========= ========= ======== =========
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CORPORATE OVERVIEW
We are one of North America's largest printing companies. Our mission
is to produce products and provide services that help our customers deliver
their messages more effectively. We are one company organized into three
business segments:
* Envelopes
* Commercial Printing
* Printed Office Products
We believe we are the world's largest manufacturer of envelopes. We
produce approximately 38 billion envelopes annually in our 39 envelope
manufacturing facilities located throughout the United States and Canada.
Approximately 84% of these envelopes are customized specifically for our
customers for use in billing and remittance, direct mail advertising and
specialty packaging. The remaining 16% are stock envelopes sold into the
resale market.
We are one of the largest commercial printers in the United States. We
operate 35 printing plants located strategically throughout the United
States and one in Canada. We specialize in high impact printing, which
includes a wide range of premium printed products such as annual reports,
car brochures and brand marketing collateral, for national and regional
customers, and general commercial printing for local and regional
customers.
We are also a leading domestic supplier of customized and stock labels,
mailers and printed business documents to small and mid-size businesses
generally through independent distributors of office products. Our Printed
Office Products segment operates 11 manufacturing plants strategically
located throughout the United States.
We have completed an 18-month restructuring of Mail-Well that began in
June 2001. This restructuring included the following:
* The consolidation of our best envelope equipment, expertise and
operational capabilities into 39 facilities, down from 50 in 2000.
* The consolidation of our printing operations in the Philadelphia
market into one facility, the closure of our printing operation in
New York City, and the consolidation of our web printing plant in
Indianapolis, Indiana into our web printing plants in St. Louis,
Missouri and Baltimore, Maryland.
* The consolidation of the Denver, Colorado and Clearwater, Florida
manufacturing facilities of our Printed Office Products segment.
* The sale of Curtis 1000, our prime label business, the filing
products division of our Envelope segment and certain of the digital
graphics operations of our Commercial Printing segment.
* The restructuring of our debt.
Paper is our most significant raw material. We purchase approximately
500,000 tons of paper annually for our businesses. Prices of uncoated
papers, which are the principal grades of paper used to manufacture
envelopes, increased approximately 10% in the fourth quarter of 2002.
Prices of coated papers, which are used principally in commercial printing,
did not increase in 2002 and have remained flat in 2003. Historically,
changes in paper pricing generally have not affected the operating results
of our Commercial Printing segment because we have been able to pass on
paper price increases to our customers. Paper pricing, however, has
impacted the operating margins of our Envelope segment. When paper prices
are rising, operating margins on our envelope products tend to be lower
because we generally are not able to increase our prices as quickly as
paper prices increase. We are experiencing this in 2003 since we have been
unable to increase the prices of our envelope products sufficiently to
cover the higher cost of uncoated papers.
21
CONSOLIDATED RESULTS OF OPERATIONS
In August 2002, the Company acquired the in-house printing and
fullfillment operations of American Express Company. The acquisition has
been accounted for as a purchase transaction, which impacts comparability
of our financial statements because the results of these operations are
included in the consolidated results from the date acquired. Where
appropriate, we have noted the impact of this acquisition in the following
discussions of our results.
The tables and discussions of sales and operating income that follow
present reported amounts as well as "ongoing" amounts. Ongoing sales
exclude sales of the filing products division of our Envelope segment that
was sold in August 2002 and the sales of certain digital graphics
operations of our Commercial Printing segment that were held for sale at
December 2002 and sold in March 2003. Ongoing operating income excludes the
operating income of the operations sold and restructuring and other charges
incurred in 2002 and during the first quarter of 2003. Since our planned
dispositions are now complete and we have completed our restructuring
programs, we believe that this analysis provides the most meaningful basis
for an understanding of our results during the second quarter and first six
months of 2003.
Demand for many of our products especially printed advertising and
direct mail promotions remain depressed and the market for traditional
business forms continues to decline. This has led to overcapacity in our
industry and significant competitive pricing pressures. We do not expect
internal growth or increases in margins until the markets we serve,
especially advertising and direct mail, recover.
Effective October 2003, Congress has instituted a federal "Do Not Call"
program, which our industry believes will increase demand for printed
advertising and direct mail as our customers shift promotional spending from
telemarketing to direct mail to reach their prospective customers. Our
efforts over the past 18 months in restructuring, and our focus this year on
Total Customer Solutions and Mobilization have enabled us to mitigate the
impact of the downturn in our markets and to benefit from improvements in
our markets, should they occur. Total Customer Solutions is our strategic
focus to align the capabilities of our three operating segments to better
service the needs of customers who purchase a variety of the products and
services we provide. Mobilization is our initiative to actively involve all
of our employees in improving service, quality, efficiency and innovation.
We believe all of these factors, both external and internal, may improve our
business during the remainder of 2003 and in 2004.
NET SALES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2003 2002 2003 2002
-------- -------- -------- --------
(IN THOUSANDS)
Ongoing................................... $407,826 $399,739 $832,274 $821,158
Filing products division............. -- 17,483 -- 36,009
Digital graphics operations.......... -- 3,745 2,872 7,282
-------- -------- -------- --------
Reported.................................. $407,826 $420,967 $835,146 $864,449
======== ======== ======== ========
Reported sales in the second quarter of 2003 were $13.1 million, or
3.1%, lower than in the second quarter of 2002 and during the six months
ended June 30, 2003 were $29.3 million, or 3.4%, lower than during the
comparable period of 2002. Excluding the sales of the filing products
division sold in August 2002 and the digital graphics operations that were
sold in March 2003, sales of our ongoing operations increased $8.1 million,
or 2.0%, in the second quarter of 2003 and $11.1 million, or 1.4%, during
the six months ended June 30, 2003 from the comparable periods of 2002.
Significant factors influencing the ongoing sales of our business segments
during the first half of 2003 were as follows:
* Envelope sales were $6.9 million lower in the second quarter of 2003
compared to the second quarter of 2002. On a year to date basis,
Envelope sales were $10.2 million lower than the
22
comparable period of 2002. Approximately 71% of this revenue decline in
the second quarter was due to a decline in units shipped and the remaining
29% was due to lower average selling prices. On a year to date basis
volume made up approximately 57% of the decline and lower average
selling prices accounted for approximately 43%. We believe the price
competition we are experiencing is due to significant overcapacity in
this industry. Our volume decline in the second quarter was the result
of our decision not to reduce prices sufficiently to retain certain low
margin business and lower demand by our customers.
* Sales of the Commercial Printing segment were $16.7 million higher in
the second quarter of 2003 and $24.5 million higher during the six
months ended June 30, 2003 than the comparable periods of 2002. These
increases were primarily due to the acquisition completed in August
2002, which contributed sales of $20.8 million during the second
quarter and $30.0 million on a year to date basis which was partially
offset by the loss of sales resulting from by the closure of our
operation in New York City.
* Sales of Printed Office Products decreased $1.7 million in the second
quarter of 2003 and $3.2 million on a year to date basis from the
comparable periods of 2002 primarily due to lower sales of multi-ply
traditional business forms and competitive pricing pressures.
RESTRUCTURING EXPENSES
As mentioned earlier, we have completed the restructuring programs
initiated in June 2001 which continued during 2002. We continually evaluate
opportunities to improve our operations. It is possible that we will incur
additional charges in the future should improvement opportunities require
restructuring plans that are approved and implemented.
Restructuring expenses recorded during the six months ended June 30,
2003 were $0.8 million, all of which related to restructuring programs
initiated prior to 2003.
PRINTED
COMMERCIAL OFFICE
PRINTING PRODUCTS TOTAL
---------- -------- -----
(IN THOUSANDS)
Employee separation and related expenses.................... $ 43 $(140) $(97)
Equipment moves............................................. 865 -- 865
Other exit costs............................................ 92 (56) 36
------ ----- ----
Total................................................... $1,000 $(196) $804
====== ===== ====
COMMERCIAL PRINTING. In the fourth quarter of 2002, Commercial Printing
announced the closure of its web printing operation in Indianapolis and the
redeployment of the two web presses and related equipment to St. Louis and
Baltimore. A substantial portion of the cost to dismantle, move and
reinstall this equipment was incurred during the first six months of 2003.
The other restructuring charges incurred relate to plans initiated in
the fourth quarter of 2002 to right size our printing plants in the
Northwest.
PRINTED OFFICE PRODUCTS. In the fourth quarter of 2002, Printed Office
Products closed its business forms plant in Clearwater, Florida and
consolidated its production in its Fairhope, Alabama plant. The employee
separation and related expenses paid as a result of this consolidation were
less than originally estimated as were other costs.
23
OPERATING INCOME (LOSS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2003 2002 2003 2002
------- -------- ------- --------
(IN THOUSANDS)
Ongoing...................................... $15,744 $ 7,461 $35,540 $ 24,573
Impairment loss on assets held for
sale................................... -- 1,815 167 4,039
Restructuring, impairments and other
charges................................ (119) (37,269) (804) (59,541)
------- -------- ------- --------
Reported..................................... $15,625 $(27,993) $34,903 $(30,929)
======= ======== ======= ========
Excluding the operating income of the filing products division and
digital graphics operations that have been sold and charges related to our
restructuring, impairments and other charges recorded in 2002, ongoing
operating income increased $8.3 million in the second quarter of 2003 and
$11.0 million on a year to date basis over operating income in the
comparable periods of 2002.
* Operating income of our Envelope segment for the second quarter and
on a year to date basis was $4.0 million below results in 2002. This
was due to primarily to lower volume and lower margins.
* Commercial Printing's ongoing operating income improved $9.6 million
in the second quarter of 2003 and on a year to date basis $15.1
million over the losses recorded in the second quarter and first six
months of 2002. The improvement in operating income was attributable
primarily to the results of the acquisition completed in August 2002,
operating improvements made during 2002 and savings that have
resulted from the restructuring actions taken during the second half
of 2002.
* The ongoing operating income of Printed Office Products for the
second quarter of 2003 was $0.6 million lower than the second quarter
of 2002 and on a year to date basis was $1.3 million lower than 2002.
This decline reflects lower sales partially offset by savings from
the plant consolidations during 2002.
* Expenses associated with corporate services decreased $3.3 million in
the second quarter of 2003 and $1.2 million on a year to date basis
over the comparable periods of 2002. Lower corporate expenses in the
first half of 2003 were the result of a reduction in workers'
compensation expense of $4.4 million partially offset by lower
supplier rebates and higher spending on employee safety programs and
employee training.
INTEREST EXPENSE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
2003 2002 2003 2002
------- ------- ------- -------
(IN THOUSANDS)
Total interest expense........................ $18,119 $20,966 $36,333 $39,448
Less: Allocated to discontinued operations.... -- (1,993) -- (5,570)
------- ------- ------- -------
Reported interest expense..................... $18,119 $18,973 $36,333 $33,878
======= ======= ======= =======
Interest expense incurred during the second quarter of 2003 reflects
our average outstanding debt during the quarter of $801.9 million and a
weighted average interest rate of 8.36% compared to the average outstanding
debt of $943.2 during the second quarter of 2002 and a weighted average
interest rate of 8.08%. Interest expense incurred during the six months
ended June 30, 2003 reflects average outstanding debt of $807.5 million and
a weighted average interest rate of 8.35% compared to the average
outstanding debt of $945.0 during the first six months of 2002 and a
weighted average interest rate of 7.48%. The average outstanding debt has
decreased year over year due primarily to the application of the proceeds
from our divestitures to the repayment of debt. Our weighted average
interest increased in 2003 as a result of the issuance of $350 million of
9 5/8% senior notes on March 13,
24
2002 the proceeds of which were used primarily to repay bank debt that
accrued interest at a lower variable rate, and in November 2002, our 5%
convertible subordinated notes were redeemed. In addition, total interest
expense has been reduced in 2003 from amounts recorded in 2002 as a result
of the write-off of the deferred financing costs associated with the bank
credit facility that was refinanced in June 2002.
Reported interest expense for the six months ended June 30, 2003 was
higher than in the first half of 2002 due to the allocation of interest
expense to discontinued operations in 2002. The amount of interest expense
allocated to discontinued operations exceeded the actual reduction in
interest expense attributable to the divestitures of the discontinued
operations. In 2002, a portion of our interest expense was allocated to
discontinued operations based on the net assets of the discontinued
operations relative to the net asset of the Company as required by
generally accepted accounting principles. The net asset amounts used to
allocate interest expense exceeded the actual net proceeds received from
the dispositions of the discontinued operations.
INCOME TAXES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ----------------------
2003 2002 2003 2002
------- ------- ------- --------
(DOLLARS IN THOUSANDS)
Income tax benefit............................ $(1,168) $(8,942) $ (767) $(13,466)
Effective tax rate............................ 41% 19% 40% 21%
The effective tax rate for 2003 is estimated to be 40%. The effective
tax rate for 2002 was lower than 2003 primarily due to a higher estimated
pre-tax loss in 2002 that increased the impact of nondeductible permanent
differences on the overall effective rate.
LOSS FROM CONTINUING OPERATIONS AND LOSS PER SHARE--DILUTED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2003 2002 2003 2002
------- -------- ------- --------
(DOLLARS IN THOUSANDS)
Loss from continuing operations.............. $(1,681) $(38,069) $(1,150) $(51,678)
Loss from continuing operations per share.... $ (0.04) $ (0.80) $ (0.02) $ (1.08)
The loss from continuing operations in the second quarter of 2003 was
$36.4 million less than the second quarter of 2002 and was $50.5 million
less on a year to date basis than the first six months of 2002. This
improvement is due to the acquisition completed in August 2002, improved
operating performance, lower overhead, and significantly lower
restructuring and other charges. Interest expense was higher in the first
six months of 2003 than in 2002. The low effective tax rate in 2002 reduced
the tax benefit of the losses in 2002 compared to the benefit in 2003. In
addition, the loss on the early extinguishment of debt recorded as an
extraordinary item in the three and six months ended June 30, 2002, $8.7
million and $16.5 million, respectively, was reclassified as a loss from
continuing operations in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 145, Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections.
LOSS (GAIN) ON DISPOSAL OF DISCONTINUED OPERATIONS
During the first quarter of 2003, we recorded a gain on the disposal of
discontinued operations in the amount of $2.5 million. This gain was the
result of an adjustment made to the tax impact of the disposition of our
prime label business, which was sold in May 2002. The gain was reduced by
$0.6 million in the second quarter based on the completion of the tax
return.
25
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
We adopted Financial Accounting Standards Board Interpretation No. 46,
Consolidation of Variable Interest Entities, an Interpretation of
Accounting Research Bulletin No. 51 ("Interpretation 46") effective January
1, 2003. The implementation of Interpretation 46 required the Company to
consolidate a trust that is leasing equipment to the Company under an
operating lease. The effect of this consolidation was to increase net
property, plant and equipment by $18.1 million and total debt by $18.5
million on January 1, 2003. The cumulative effect of this change in
accounting principle was an after-tax charge of $0.3 million.
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE--DILUTED
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ---------------------
2003 2002 2003 2002
------- -------- ----- ---------
(DOLLARS IN THOUSANDS)
Net income (loss)............................. $(2,262) $(38,222) $ 447 $(171,578)
Net income (loss) per share................... $ (0.05) $ (0.80) $0.01 $ (3.60)
The net income (loss) and net income (loss) loss per share in the
second quarter of 2003 and on a year to date basis reflect the reduction in
income (loss) from continuing operations, the loss (gain) recorded on the
disposal of discontinued operations and the cumulative effect of a change
in accounting principle.
The net loss and net loss per share reported in the second quarter of
2002 and for the six months ended June 30, 2002 reflected the loss from
continuing operations, losses of $0.2 million in the quarter and $8.2
million for the six months ended June 30, 2002 on disposal of discontinued
operations and the $111.7 goodwill impairment charge recorded as a
cumulative effect of a change in accounting principle as a result of the
adoption of SFAS No. 142, Goodwill and Other Intangible Assets.
BUSINESS SEGMENTS
ENVELOPE
SALES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2003 2002 2003 2002
-------- -------- -------- --------
(IN THOUSANDS)
Ongoing................................... $170,831 $177,685 $349,902 $360,134
Filing products division.............. -- 17,483 -- 36,009
-------- -------- -------- --------
Reported.................................. $170,831 $195,168 $349,902 $396,143
======== ======== ======== ========
OPERATING INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ----------------------
2003 2002 2003 2002
------- ------- ------- --------
(IN THOUSANDS)
Ongoing....................................... $13,897 $17,866 $31,892 $ 35,884
Filing products division.................. -- 1,132 -- 2,540
Restructuring expenses.................... -- (7,545) -- (19,559)
------- ------- ------- --------
Reported...................................... $13,897 $11,453 $31,892 $ 18,865
======= ======= ======= ========
Reported sales of the Envelope segment were $170.8 million in the
second quarter of 2003, $24.3 million below sales in the second quarter of
2002. Excluding sales of the filing products division, which was sold in
August 2002, the sales decline was $6.9 million, or 3.9%. Excluding the
impact of the
26
foreign currency benefit from the strength of the Canadian dollar, the
sales decline was $10.2 million and due primarily to the following:
* Domestic sales of our direct mail and consumer direct envelopes were
down approximately $7.3 million, or 8.3%, in the second quarter.
Approximately 71% of this decline was related to volume and 29%
related to lower pricing. The decline in volume was due to lower
demand by our customers for transactional envelopes, lower sales to
direct mail customers and volume lost due to competitive pricing. Our
average selling price decreased due to competitive pricing pressures
and lower sales of higher value added products.
* Sales into the resale segment of the market decreased approximately
$1.4 million, or 3.7%, due almost entirely to competitive pricing
pressures. Unit sales into this market segment decreased only
slightly in the quarter.
* Excluding the impact of foreign currency, sales in Canada decreased
approximately $0.8 million, or 2.5%, entirely due to competitive
pricing pressures. Unit sales in Canada were higher during the second
quarter than in the second quarter of 2002.
Reported operating income of the Envelope segment in the second quarter
of 2003 was $13.9 million, $2.4 million higher than the second quarter of
2002. Excluding the operating income of the filing products division and
restructuring expenses, operating income was $4.0 million lower than the
second quarter of 2002. The impact of lower pricing was approximately $5.0
million and the impact of the decline in volume was approximately $2.3
million. Manufacturing overhead and selling and administrative expenses
were reduced by approximately $2.6 million from the second quarter of 2002.
The foreign currency translation benefit to operating income was $0.7
million.
Reported sales were $349.9 million for the six months ended June 30,
2003, $46.2 million below sales during the comparable period of 2002.
Excluding sales of the filing products division, the sales decline was
$10.2 million, or 2.8%. Excluding the impact of the foreign currency
benefit, the sales decline was $15.3 million and was due primarily to the
following:
* Domestic sales of our direct mail and consumer direct envelopes
decreased approximately $11.6 million, or 6.4%. Lower volume
contributed approximately 57.0% of this decline and lower average
selling prices contributed the remaining 43.0%.
* Sales into the resale segment of the market decreased approximately
$0.6 million, or 1.0% due primarily to volume, which was lower in the
first quarter than in the first quarter of 2002. Average selling
prices were favorable enough in the first quarter to offset the lower
pricing experienced in the second quarter.
* Sales in Canada decreased approximately $1.3 million on a
year-to-date basis due entirely to lower pricing. Units sold by our
Canadian operations were slightly higher in the first six months of
2003 than during the comparable period of 2002.
Reported operating income was $31.9 million for the six months ended
June 30, 2003, $13.0 million higher than the comparable period of 2002.
Excluding the operating income of the filing products division and
restructuring expenses, operating income was $4.0 million lower than during
the first six months of 2002. Lower average selling prices for our products
reduced operating income by approximately $6.6 million. The impact of lower
sales volume was approximately $4.9 million. Manufacturing overhead and
selling and administrative expenses were reduced by approximately
$6.4 million. The foreign currency translation benefit to operating income
was $1.1 million.
27
COMMERCIAL PRINTING
SALES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- -----------------------
2003 2002 2003 2002
-------- -------- -------- --------
(IN THOUSANDS)
Ongoing................................... $186,652 $169,982 $381,729 $357,200
Digital graphics operations........... -- 3,745 2,872 7,282
-------- -------- -------- --------
Reported.................................. $186,652 $173,727 $384,601 $364,482
======== ======== ======== ========
OPERATING INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- ----------------------
2003 2002 2003 2002
------ ------- ------- --------
(IN THOUSANDS)
Ongoing........................................ $2,869 $(6,723) $ 5,522 $ (9,574)
Digital graphics operations................ -- 109 167 66
Restructuring expenses..................... (176) (1,448) (1,000) (2,455)
------ ------- ------- --------
Reported....................................... $2,693 $(8,062) $ 4,689 $(11,963)
====== ======= ======= ========
Reported sales of the Commercial Printing segment were $186.7 million
in the second quarter of 2003, $12.9 million higher than sales in the
second quarter of 2002. Excluding sales of the digital graphics operations,
which were sold in March 2003, the sales increase was $16.7 million, or
9.8%.
* Sales of our high-impact printing to our national and regional
customers were $2.1 million higher than the second quarter of 2002.
* Excluding sales of $20.8 million of the acquisition completed in
August 2002, sales to our local commercial printing customers were
approximately $2.3 million below the second quarter of 2002. Our
unprofitable operation in New York City which was closed in September
2002 had sales of $3.9 million in the second quarter of 2002.
Reported operating income of the Commercial Printing segment in the
second quarter of 2003 was $2.7 million, an improvement of $10.8 million
over the loss reported in the second quarter of 2002. Excluding the
operating income of the digital graphics operations and restructuring
expenses, operating income was $2.9 million, an improvement of $9.6 million
from the second quarter of 2002. The improvement in ongoing operating
income can be attributed to the results of the acquisition, the closure of
the unprofitable operation in New York City and improvements resulting from
the restructuring and other actions taken during 2002. Despite competitive
pricing pressures, overall gross profit margin improved in the second
quarter of 2003 by 1.9 percentage points. This was the result of
productivity improvements and a reduction of $1.0 million in manufacturing
overhead primarily due to the consolidation of our Indianapolis web
operations. Selling and administrative costs were approximately $4.1
million lower in the second quarter of 2003 compared to the second quarter
of 2002.
Reported sales of the Commercial Printing segment were $384.6 million
during the six months ended June 30, 2003, $20.1 million higher than sales
during the comparable period of 2002. Excluding sales of the digital
graphics operations, the sales increase was $24.5 million, or 6.7%.
* Sales of our high-impact printing to our national and regional
customers were $2.1 million lower than during the first six months of
2002.
* Excluding $30.0 million of sales contributed by the acquisition,
sales to our local commercial printing customers were approximately
$4.5 million higher than sales in the first half of 2002 after excluding
the $7.9 million of sales of the closed New York City operation.
28
Reported operating income of the Commercial Printing segment for the
six months ended June 30, 2003 was $4.7 million, an improvement of $16.7
million over the loss reported in the comparable period of 2002. Excluding
the operating income of the digital graphics operations and restructuring
expenses, operating income was $5.5 million, an improvement of $15.1
million over the loss incurred in the first half of 2002. The improvement
in ongoing operating income can be attributed to the acquisition, the
closure of the unprofitable operation in New York City and improvements
resulting from the restructuring and other actions taken during 2002. On a
year-to-date basis, gross profit margins has been improved by 1.2
percentage points compared to the first half of 2002 due to improved
operating efficiencies and reductions of $2.4 million in manufacturing
overhead. Sales and administrative expenses are $6.1 million lower in the
six months ended June 30, 2003 than in the comparable period of 2002.
PRINTED OFFICE PRODUCTS
SALES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- -----------------------
2003 2002 2003 2002
------- ------- -------- --------
(IN THOUSANDS)
Reported.................................... $50,343 $52,072 $100,643 $103,824
======= ======= ======== ========
OPERATING INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- --------------------
2003 2002 2003 2002
------ ------ ------ -------
(IN THOUSANDS)
Ongoing........................................... $4,715 $5,282 $8,427 $ 9,722
Restructuring expenses........................ 57 (168) 197 (1,047)
------ ------ ------ -------
Reported.......................................... $4,772 $5,114 $8,624 $ 8,675
====== ====== ====== =======
Sales of Printed Office Products were $1.7 million lower in the second
quarter of 2003 and $3.2 million lower in the six months ended June 30,
2003 than the comparable periods of 2002. Sales of Printed Office Products
have declined in 2003 due primarily to lower sales of multi-ply traditional
business forms and competitive pricing pressures. We believe these sales
declines are consistent with sales declines in the industry. Our specialty
products are growing and sales of our label products during the first half
of 2003 have been comparable to sales in 2002.
Reported operating income of Printed Office Products was $4.8 million
in the second quarter of 2003 and $8.6 million during the six months ended
June 30, 2003, slightly lower than the comparable periods of 2002.
Excluding restructuring expenses, operating income was $0.6 million lower
in the second quarter and $1.3 million lower during the six months ended
June 30, 2003 than the comparable periods of 2002. The decline in operating
income was due to the decline in sales, and lower margins due to
competitive pressures, which were partially offset by reductions in fixed
costs.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2003, our outstanding debt had increased $4.3 million to
$768.1 million from the balance of $763.9 million at December 31, 2002 due
to the implementation of Interpretation 46. At June 30, 2003 our
outstanding debt included $17.8 million of debt held by a VIE that was
consolidated on January 1, 2003. Our operations generated cash flow of
$20.2 million and $14.4 million during the six months ended June 30, 2003
and June 30, 2002, respectively. At June 30, 2003 our revolving loan
balance was $11.5 million lower than December 31, 2002.
Capital expenditures were $13.0 million during the six months ended
June 30, 2003 compared to $21.4 million in the same period of 2002.
29
The $3.9 million of net proceeds received from the sale of the digital
graphics operations in March 2003 were applied to our revolving bank debt.
The following table summarizes our cash payment obligations as of June
30, 2003 by year:
TOTAL CASH
LONG-TERM DEBT OPERATING LEASES OBLIGATIONS
-------------- ---------------- -----------
Year 1..................... $ 2,819 $ 31,172 $ 33,991
Year 2..................... 93,233 26,900 120,133
Year 3..................... 2,400 22,436 24,836
Year 4..................... 2,353 17,701 20,054
Year 5..................... 12,796 12,910 25,706
Thereafter................. 654,463 19,518 673,981
-------- -------- -----------
Total...................... $768,064 $130,637 $ 898,701
======== ======== ===========
At June 30, 2003, we had outstanding letters of credit of approximately
$22.8 million related to performance and payment guarantees. In addition,
we have issued letters of credit of $1.9 million as credit enhancements in
conjunction with other debt. Based on our experience with these
arrangements, we do not believe that any obligations that may arise will be
significant.
Our credit ratings as of June 30, 2003 were as follows:
SENIOR SENIOR SENIOR
SECURED UNSECURED SUBORDINATED
RATING AGENCY DEBT DEBT DEBT LAST UPDATE
- ------------- ------- --------- ------------ -----------
Standard & Poor's..... BB- BB- B July-02
Moody's............... B1 B1 B3 February-02
The terms of our existing debt do not have any rating triggers, and we
do not believe that our current ratings will impact our ability to raise
additional capital.
We expect to be able to fund our operations, capital expenditures and
debt and other contractual commitments within the next year from internally
generated cash flow and funds available under our senior credit facility.
At June 30, 2003, we had $123.2 million of unused credit available under
this credit facility.
SEASONALITY AND ENVIRONMENT
Our Commercial Printing segment experiences seasonal variations. Our
revenues from annual reports are generally concentrated from February
through April. Revenues associated with holiday catalogs and automobile
brochures tend to be concentrated from July through October, and calendars
from May to September. As a result of these seasonal variations, we are at
or near capacity in some facilities at certain times during these periods.
Several consumer direct market segments served by our Envelope segment
and certain segments of the direct mail market, experience seasonality,
with a higher percentage of the volume of products sold to these markets
occurring during the fourth quarter of the year. This seasonality is due to
the increase in sales to the direct mail market due to holiday purchases.
Seasonality is offset by the diversity of our other products and
markets, which are not materially affected by seasonal conditions.
Environmental matters have not had a material financial impact on our
historical operations and are not expected to have a material impact in the
future.
30
NEW ACCOUNTING STANDARDS
In April 2003 the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS No. 149 amends and clarifies financial reporting
for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS No. 133.
SFAS No. 149 is effective for contracts entered into or modified after June
30, 2003, and should be applied prospectively, with the exception of
certain SFAS No. 133 implementation issues that were effective for all
fiscal quarters prior to June 15, 2003. Any such implementation issues
should continue to be applied in accordance with their respective effective
dates. This statement does not impact the financial statements of the
Company.
In May 2003 the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. SFAS No. 150 applies specifically to a number of
financial instruments that companies have historically presented within
their financial statements either as equity or between the liabilities
section and the equity section, rather than as liabilities. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. This statement does not impact the
financial statements of the Company.
AVAILABLE INFORMATION
Our Internet address is: www.mail-well.com. We make available free of
charge through our website our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as
soon as reasonably practicable after such documents are filed
electronically with the Securities and Exchange Commission. In addition,
our earnings conference calls and presentations to securities analysts are
web cast live via our website.
LEGAL PROCEEDINGS
From time to time we may be involved in claims or lawsuits that arise
in the ordinary course of business. Accruals for claims or lawsuits have
been provided for to the extent that losses are deemed probable and
estimable. Although the ultimate outcome of these claims or lawsuits cannot
be ascertained, on the basis of present information and advice received
from counsel, it is our opinion that the disposition or ultimate
determination of such claims or lawsuits will not have a material adverse
effect on us.
FORWARD-LOOKING INFORMATION
This report, including "Management's Discussion and Analysis of
Financial Condition and Results of Operations," may contain various
"forward-looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934, that are based on management's belief and
assumptions, as well as information currently available to management.
Although we believe that the expectations reflected in any such
forward-looking statements are reasonable, we can give no assurance that
such expectations will prove to be correct. Any such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, our actual financial results, performance or condition may
vary materially from those expected. Some of the key factors that may have
a direct bearing on our actual financial results, performance or condition
are as follows:
* Paper and other raw material costs
* The degree and nature of competition
* The ability to achieve productivity and cost savings goals
31
* The success of certain strategic initiatives, including "Total
Customer Solutions" strategy
* Postage rates and other changes in the direct-mail industry
* Interest rates and foreign currency exchange rates
* Ability to obtain additional or alternative financing
* General economic conditions
* General labor conditions
* The impact of the Internet and other electronic media on the demand
for envelopes and printed material
* Other factors as described in our most recent annual report on Form
10-K under the heading "Forward Looking Information"
In view of such uncertainties, investors are cautioned not to place
undue reliance on these forward-looking statements. We do not assume any
obligation to update these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks such as changes in interest and foreign
currency exchange rates, which may adversely affect results of operations
and financial position. Risks from interest and foreign currency exchange
rate fluctuations are managed through normal operating and financing
activities. We do not utilize derivatives for speculative purposes, nor did
we hedge interest rate exposure through the use of swaps and options or
foreign exchange exposure through the use of forward contracts as of
December 31, 2002. However, the Board of Directors have given management
authority to engage in interest rate swaps.
Exposure to market risk from changes in interest rates relates
primarily to our variable rate debt obligations. The interest on this debt
is the London Interbank Offered Rate ("LIBOR") plus a margin. At June 30,
2003, we had variable rate debt outstanding of $110.0 million. A 1%
increase in LIBOR on the maximum amount of debt subject to variable
interest rates, which is $319.6 million, would increase our interest
expense by $3.2 million and reduce our net income by approximately $1.9
million.
We have operations in Canada, and thus are exposed to market risk for
changes in foreign currency exchange rates of the Canadian dollar.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our chief executive
officer and our chief financial officer, after evaluating the effectiveness
of our "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the
"Evaluation Date") within 90 days before the filing date of this report,
have concluded that as of the Evaluation Date, our disclosure controls and
procedures were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made known to
them by others within those entities.
CHANGES IN INTERNAL CONTROLS. There were no significant changes in our
internal controls or procedures or in other factors that could
significantly affect our disclosure controls and procedures subsequent to
the Evaluation Date.
32
PART II OTHER INFORMATION
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On May 1, 2003, the Company held its Annual Meeting of Stockholders, at
which the following matters were voted upon:
ELECTION OF DIRECTORS--The following individuals were elected or
re-elected to the Board of Directors by the following vote:
NAME FOR WITHHOLD
- ------------------------------------------- ---------- --------
Thomas E. Costello 41,242,227 328,630
Frank P. Diassi 41,188,561 382,296
Frank J. Hevrdejs 41,248,627 322,230
Martin J. Maloney 41,240,634 330,223
David M. Olivier 41,241,427 329,430
Janice C. Peters 41,197,945 372,912
Jerome W. Pickholz 41,248,927 321,930
Paul V. Reilly 41,092,971 477,886
Alister W. Reynolds 41,198,045 372,812
Susan Rheney 41,243,552 327,305
SELECTION OF AUDITORS--The selection of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending 2003 was
ratified by the following vote: 41,142,233 For, 228,119 Against, 200,504
Abstentions.
33
PART IV
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of Mail-Well Corporation--
incorporated by reference from Mail-Well I Corporation's Form S-4
filed March 15, 1999 (Reg. No. 333-74409).
3.2 Certificate of Amendment of Certificate of Incorporation of
Mail-Well Corporation--incorporated by reference from
Mail-Well I Corporation's Form S-4 filed March 15, 1999
(Reg. No. 333-74409).
3.3 Certificate of Correction Filed to Correct Certain Errors in
the Certificate of Amendment of Mail-Well I Corporation
Filed in the Office of the Secretary of State of Delaware on
September 11, 1995--incorporated by reference from Mail-Well
I Corporation's Form S-4 filed March 15, 1999 (Reg. No.
333-74409).
3.4 Certificate of Change of Registered Agent and Registered
Office--incorporated by reference from Mail-Well I
Corporation's Form S-4 filed March 15, 1999 (Reg. No.
333-74409).
3.5 Bylaws of Mail-Well I Corporation--incorporated by reference
from Mail-Well I Corporation's Form S-4 filed March 15, 1999
(Reg. No. 333-74409).
4.1 Indenture dated as of December 16, 1998 between Mail-Well I
Corporation and State Street Bank and Trust Company, as
Trustee, relating to Mail-Well I Corporation's $300,000,000
aggregate principal amount of 8 3/4% Senior Subordinated
Notes due 2008--incorporated by reference from Exhibit 4.4
to Mail-Well, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998, File No. 1-12551.
4.2 Form of Senior Subordinated Note--incorporated by reference
from Exhibit 4.5 to Mail-Well, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1998, File No. 1-12551.
4.3 Indenture dated as of March 13, 2002 between Mail-Well I
Corporation and State Street Bank and Trust Company, as
Trustee relating to Mail-Well I Corporation's $350,000,000
aggregate principal amount of 9 5/8% Senior Notes due
2012--incorporated by reference to Exhibit 10.30 to
Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002.
4.4 Form of Senior Note and Guarantee relating to Mail-Well I
Corporation's $350,000,000 aggregate principal amount 9 5/8%
due 2012--incorporated by reference to Exhibit 10.31 to
Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002.
10.1 Form of Indemnity Agreement between Mail-Well, Inc. and each
of its officers and directors--incorporated by reference
from Exhibit 10.17 of Mail-Well, Inc.'s Registration
Statement on Form S-1 dated March 25, 1994.
10.2 Form of Indemnity Agreement between Mail-Well I Corporation
and each of its officers and directors--incorporated by
reference from Exhibit 10.18 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated March 25, 1994.
10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as
of February 23, 1994 and related Employee Stock Ownership
Plan Trust Agreement--incorporated by reference from Exhibit
10.19 of Mail-Well, Inc.'s Registration Statement on Form
S-1 dated March 25, 1994.
10.4 Form of M-W Corp. 401(k) Savings Retirement Plan--
incorporated by reference from Exhibit 10.20 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated March 25, 1994.
34
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.5 Form of Mail-Well, Inc. Incentive Stock Option Agreement--
incorporated by reference from Exhibit 10.22 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated March 25, 1994.
10.6 Form of Mail-Well, Inc. Nonqualified Stock Option Agreement--
incorporated by reference from Exhibit 10.23 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated March 25, 1994.
10.7 1997 Non-Qualified Stock Option Agreement--incorporated by
reference from Exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the
quarter ended March 31, 1997.
10.8 Mail-Well, Inc. 1998 Incentive Stock Option Plan Incentive Stock
Option Agreement--incorporated by reference from Exhibit 10.59 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
10.9 Mail-Well, Inc. 2001 Long-Term Equity Incentive Plan--incorporated
by reference from the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001.
10.10 Form of Non-Qualified Stock Option Agreement under 2001 Long-Term
Equity Incentive Plan--incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
10.11 Form of Incentive Stock Option Agreement under 2001 Long-Term
Equity Incentive Plan--incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2001.
10.12 Form of Restricted Stock Award Agreement under 2001 Long-Term
Equity Incentive Plan--incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2001.
10.13 Purchase Agreement dated March 8, 2002, between Mail-Well I
Corporation, and Credit Suisse First Boston, UBS Warburg LLC, Banc
of America Securities LLC, U.S. Bancorp Piper Jaffray Inc., First
Union Securities, Inc., and Scotia Capital (USA) Inc., as Initial
Purchasers, relating to Mail-Well I Corporation's $350,000,000
aggregate principal amount of 9 5/8% Senior Notes due 2012--
incorporated by reference to Exhibit 10.30 to Mail-Well I
Corporation's Registration Statement on Form S-4 filed June 11,
2002.
10.14 Registration Rights Agreement dated March 13, 2002, between
Mail-Well I Corporation, and Credit Suisse First Boston, UBS
Warburg LLC, Banc of America Securities LLC, U.S. Bancorp Piper
Jaffray Inc., First Union Securities, Inc., and Scotia Capital
(USA) Inc., as Initial Purchasers, relating to Mail-Well I
Corporation's $350,000,000 aggregate principal amount of 9 5/8%
Senior Notes due 2012--incorporated by reference to Exhibit 10.32
to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002.
10.15 Amended and Restated Credit Agreement dated June 27, 2002, among
the Company, Mail-Well I Corporation, the domestic subsidiaries of
Mail-Well I Corporation named in the agreement, the financial
institutions from time to time parties thereto, and Bank of
America, N.A., as administrative agent--incorporated by reference
to Exhibit 10.27 of Mail-Well, Inc.'s Form 10-Q for the quarter
ended June 30, 2002.
10.16 Amended and Restated Security Agreement dated June 27, 2002, among
the Company, Mail-Well I Corporation, the domestic subsidiaries of
Mail-Well I Corporation named in the agreement, and Bank of
America, N.A., as agent--incorporated by reference to Exhibit 10.28
of Mail-Well, Inc.'s Form 10-Q for the quarter ended June 30, 2002.
10.17 Amendment No. 1 to Amended and Restated Credit Agreement, dated
September 27, 2002 among Mail-Well, Inc., Mail-Well I Corporation,
certain subsidiaries of Mail-Well I, the
35
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
lenders under the Amended and Restated Credit Agreement, and Bank
of America, N.A., as administrative agent for the lenders--
incorporated by reference to Exhibit 10.36 of Mail-Well I
Corporation's Amendment No. 2 to Registration Statement on Form S-4
filed October 8, 2002.
10.18 Second Amended and Restated Equipment Lease dated as of August 6,
2002 between Wells Fargo Bank Northwest, National Association, as
trustee under MW 1997-1 Trust, and Mail-Well I Corporation--
incorporated by reference to Exhibit 10.26 of Mail-Well, Inc.'s
Form 10-Q for the quarter ended September 30, 2002.
10.19 Second Amended and Restated Guaranty Agreement dated as of August
6, 2002, among Mail-Well I Corporation as Lessee, certain of its
subsidiaries and Mail-Well, Inc. as Guarantors, Fleet Capital
Corporation as Agent, and the Trust Certificate Purchasers named
therein--incorporated by reference to Exhibit 10.27 of Mail-Well,
Inc.'s Form 10-Q for the quarter ended September 30, 2002.
10.20 Second Amended and Restated Participation Agreement dated as of
August 6, 2002, among Mail-Well I Corporation as Lessee, Fleet
Capital Corporation as Arranger and Agent, and the Trust
Certificate Purchasers named therein--incorporated by reference to
Exhibit 10.28 of Mail-Well, Inc.'s Form 10-Q for the quarter ended
September 30, 2002.
10.21 Amendment Agreement No. 1 dated as of September 25, 2002, among
Mail-Well I Corporation as Lessee, certain of its subsidiaries and
Mail-Well, Inc. as Guarantors, Fleet Capital Corporation as Agent,
and the Trust Certificate Purchasers named therein--incorporated by
reference to Exhibit 10.29 of Mail-Well, Inc.'s Form 10-Q for the
quarter ended September 30, 2002.
10.22 Amendment No. 2 to Amended and Restated Credit Agreement, dated
December 27, 2002, among the Company, Mail-Well I Corporation,
certain subsidiaries of Mail-Well I, the lenders under the Amended
and Restated Credit Agreement, and Bank of America, N.A., as
administrative agent for the lenders--incorporated by reference to
Exhibit 99.1 of the Company's Current Report on Form 8-K filed
January 8, 2003.
10.23 Amendment No. 1 to Amended and Restated Security Agreement, dated
December 27, 2002, among the Company, Mail-Well I Corporation,
certain subsidiaries of Mail-Well I, and Bank of America, N.A., as
agent--incorporated by reference to Exhibit 99.2 of the Company's
Current Report on Form 8-K filed January 8, 2003.
10.24 Employment and Executive Severance Agreement dated as of March 10,
2003, between the Company and Paul V. Reilly.
10.25 Form of Executive Severance Agreement entered into between the
Company and each of the following: Michel Salbaing, Gordon
Griffiths, Brian Hairston, Keith Pratt, William Huffman, D. Robert
Meyer and Mark Zoeller.
99.1* Certification of Periodic Report by Paul V. Reilly, President and
Chief Executive Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2* Certification of Periodic Report by Michel P. Salbaing, Senior Vice
President--Finance and Chief Financial Officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
- ---------------
* Furnished herewith.
36
(b) REPORTS ON FORM 8-K
1. Current report filed under Item 5 on Form 8-K dated as of May 13,
2003 in connection with the script of the company's investor
conference call held on May 6, 2003.
2. Current report filed under Item 9 on Form 8-K dated as of May 6,
2003 in connection with certifications of the company's CEO and CFO
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
city of Englewood, state of Colorado, on July 31, 2003.
MAIL-WELL, INC.
By: /s/ PAUL V. REILLY
--------------------------------------------
Paul V. Reilly, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ MICHEL P. SALBAING
--------------------------------------------
Michel P. Salbaing, Senior Vice President--
Finance and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
38
I, Paul V. Reilly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mail-Well, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July 31, 2003
/s/ PAUL V. REILLY
---------------------------------------------
Chief Executive Officer
39
I, Michel P. Salbaing, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mail-Well, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: July 31, 2003
/s/ MICHEL P. SALBAING
---------------------------------------------
Chief Financial Officer
40