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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2 TO
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 0-26692
MAIL-WELL, INC.
(Exact name of Registrant as specified in its charter.)
Colorado 84-1250533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 Inverness Way East, Englewood, CO 80112
(Address of principal executive offices) (Zip Code)
303-790-8023
(Registrant's telephone number, including area code)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
As of July 31, 1997, the Registrant had 18,815,356 shares of Common Stock, $0.01
par value, outstanding.
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MAIL-WELL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
Part I - Financial Information
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
2
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the consolidated historical
financial statements and related notes of Mail-Well, Inc. and its subsidiaries
(the "Company") included elsewhere in this report. In addition to the historical
information contained herein, this report contains forward-looking statements.
The reader of this information should understand that all such forward-looking
statements are subject to various uncertainties and risks that could affect
their outcome. The Company's actual results could differ materially from those
suggested by such forward-looking statements. Factors which could cause or
contribute to such differences include, but are not limited to, product demand
and sales, growth rate, ability to obtain assumed productivity savings, quality
controls, availability of acquisition opportunities and their related costs,
cost savings due to integration and synergies associated with acquisitions,
ability to obtain additional financings and bank debt restructuring, interest
rates, foreign currency exchange rates, paper and raw material costs, waste
paper prices, ability to pass through paper costs to customers, postage rates,
changes in the direct mail industry, competition, ability to develop new
products, labor costs, labor relations and advertising costs. This entire report
should be read to put such forward-looking statements in context and to gain a
more complete understanding of the uncertainties and risks involved in the
Company's business.
Overview
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
$ $ $ $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales
U.S. Envelope $139,677 $140,679 $279,377 $269,356
Canadian Envelope 27,466 20,176 59,082 42,326
High Impact Color Printing 40,339 24,255 81,055 67,153
-------- -------- -------- --------
Total Net Sales 207,482 185,110 419,514 378,835
-------- -------- -------- --------
Cost of Sales
U.S. Envelope 108,325 112,088 216,648 214,982
Canadian Envelope 19,017 14,146 41,794 30,309
High Impact Color Printing 33,319 19,494 67,021 56,468
Corporate 540 0 1,136 0
-------- -------- -------- --------
Total Cost of Sales 161,201 145,728 326,599 301,759
-------- -------- -------- --------
Gross Profit 46,281 39,382 92,915 77,076
-------- -------- -------- --------
Operating Expenses
U.S. Envelope 16,738 14,399 33,471 29,252
Canadian Envelope 4,176 2,942 8,746 5,926
High Impact Color Printing 5,255 3,934 10,420 8,976
Corporate 2,851 4,052 6,837 6,171
-------- -------- -------- --------
Total Operating Expenses 29,020 25,327 59,474 50,325
-------- -------- -------- --------
Operating Income 17,261 14,055 33,441 26,751
Corporate expenses:
Interest expense - debt 4,551 7,064 9,105 14,145
Interest expense -
amortization of deferred
financing costs 724 748 1,448 1,480
Discount on sale of accounts
receivable 938 0 1,961 0
Other (income) expense (354) (77) (884) (23)
Income tax expense 4,826 2,708 9,254 4,770
-------- -------- -------- --------
Net Income $ 6,576 $ 3,612 $ 12,557 $ 6,379
======== ======== ======== ========
</TABLE>
3
<PAGE>
Operating Results -- Net income for the quarter ended June 30, 1997 increased
by $3.0 million ($0.15 per share), or 82%, compared with the prior year period.
For the six months ended June 30, 1997, net income increased by $6.2 million
($0.32 per share), or 97%, compared with the six months ended June 30, 1996.
Sales for the quarter ended June 30, 1997 rose $22.4 million, or 12%, from the
prior year's quarter, and for the first six months of 1997 increased by $40.7
million, or 10.7%, over the first six months of 1996. During the most recent
quarter and the first six months of 1997, the Company focused its efforts on
integrating the operations of recently acquired businesses into the Canadian
Envelope and High Impact Color Printing segments of the Company. These efforts
included reviewing the acquired operations to determine changes to be made to
cost structures, pricing and strategic markets. The High Impact Color Printing
segment continued to address market pressures by repositioning its marketing
efforts toward the channels within this segment for which the gross margins were
higher. In November 1996, the bank credit agreement was amended, the Company
refinanced certain equipment under a sale/leaseback arrangement and a receivable
securitization facility was arranged. The effects of these transactions are
reflected in the results for 1997.
Acquisitions
In April 1996, the Company acquired Quality Park Products, Inc. ("Quality"),
a printer and manufacturer of envelopes. In November 1996, the Company acquired
Pac National Group Products, Inc. ("PNG"), a Canadian envelope printer and
manufacturer based in Ontario. In December 1996, the Company acquired Shepard
Poorman Communications Corporation ("SP"), a high impact color printer located
in Indianapolis, Indiana.
On June 27, 1997, the Company acquired all of the outstanding shares of common
stock of Griffin Envelope, Inc. ("Griffin"). Griffin, which is located in
Seattle, Washington, manufactures and distributes envelopes in the northwestern
United States. Annual sales for Griffin approximate $12 million. The balance
sheet of Griffin is included in the consolidated balance sheet of the Company as
of June 30, 1997; the statement of operations excludes the operations of
Griffin.
On July 11,1997, the Company acquired all of the outstanding shares of common
stock of The Allied Printers ("Allied"). Allied, which is located in Seattle,
Washington, is a high impact color printer servicing customers with sheet fed
printing needs. Annual sales for Allied approximate $17 million. The Company
issued 36,531 shares of common stock in connection with this acquisition.
On July 14, 1997, the Company acquired all of the outstanding shares of common
stock of Murray Envelope Corporation ("Murray"). Murray, which is located in
Hattiesburg, Mississippi, manufactures envelopes primarily for sales through
distributors in the southeastern and south central markets. Additionally, the
Barkley division of Murray distributes filing products for the national market.
Annual sales for Murray approximate $48 million. In connection with the
acquisition, a wholly-owned subsidiary of the Company issued 110,236 shares of
common stock which are convertible into an equal number of shares of Company
common stock.
The Company paid approximately $35.0 million in the aggregate, in cash, Company
common stock, notes and convertible securities (as described above with respect
to Murray) for Griffin, Allied and Murray.
4
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The table below presents the historical sales and cost of sales of the Company
adjusted to show the effects of acquisitions as if the acquisitions had occurred
on the January 1 of the year prior to the acquisition date.
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
1997 1996 1997 1996
$ $ $ $
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales as reported $207,482 $185,110 $419,514 $378,835
Pre-acquisition net sales of
acquired companies:
Quality 23,266
All other acquisitions in
the aggregate (PNG, SP,
Griffin) 3,021 29,768 6,069 56,954
-------- -------- -------- --------
Total Net Sales 210,503 214,878 425,583 459,055
-------- -------- -------- --------
Cost of Sales as reported 161,201 145,728 326,599 301,759
Pre-acquisition cost of sales
of acquired companies:
Quality 19,654
All other acquisitions in
the aggregate (PNG, SP,
Griffin) 2,332 22,978 4,494 45,337
-------- -------- -------- --------
Total Cost of Sales 163,533 168,706 331,093 366,750
-------- -------- -------- --------
Pro Forma Gross Profit $ 46,970 $ 46,172 $ 94,490 $ 92,305
======== ======== ======== ========
</TABLE>
5
<PAGE>
Results Of Operations
U.S. Envelope
The following table presents historical financial data for the U.S. Envelope
operations of the Company, including the operations of Quality from the date of
acquisition (April 1, 1996).
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) $ % $ % $ % $ %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......................................... $139,677 100.0 $140,679 100.0 $279,377 100.0 $269,356 100.0
Cost of sales..................................... 108,325 77.5 112,088 79.7 216,648 77.5 214,982 79.8
Operating expenses................................ 16,738 12.0 14,399 10.2 33,471 12.0 29,252 10.9
-------- ----- -------- ----- -------- ----- -------- -----
Operating income.................................. $ 14,614 10.5 $ 14,192 10.1 $ 29,258 10.5 $ 25,122 9.3
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Quarter Ended June 30, 1997 Compared to the Quarter Ended June 30, 1996
Net sales -- Net sales decreased by $1.0 million (or 0.7%) for the quarter
ended June 30, 1997 compared to the quarter ended June 30, 1996. The average
selling price decreased 8.1% to $19.08 per thousand units for the quarter ended
June 30, 1997 from $20.76 per thousand units for the quarter ended June 30,
1996, due mainly to lower paper costs and competitive pricing pressures. Because
of its ability to pass on changes in paper costs to its customers, the Company
uses volumes of units sold and material gross margin (that is, net sales less
cost of materials net of waste recovery revenue, measured on a per thousand unit
basis) as indicators of revenue trends in its envelope operations. Unit volume
increased 7.3% to 7.3 billion units in the second quarter of 1997 from 6.8
billion units in the same quarter of 1996, indicating that customers have been
increasing their volumes at the lower prices. Material gross margin decreased to
$11.09 per thousand units in the second quarter of 1997 from $11.32 per thousand
units in the year-ago period, as lower selling prices were not entirely offset
by lower paper prices.
Cost of sales -- Total cost of sales, as a percentage of sales, decreased
from 79.7% in 1996 to 77.5% in 1997. Cost of sales includes materials, labor,
manufacturing, depreciation and other manufacturing costs, net of waste recovery
revenue. A decrease in average paper costs of approximately 16% in the second
quarter of 1997 from the second quarter of 1996 was the major factor in the
reduction in total cost of sales. The decline in paper costs, while material
gross margins remained relatively constant, resulted in the decrease in cost of
sales as a percentage of sales. In addition, factory labor and overhead costs
declined to $5.71 per thousand units in the second quarter of 1997 from $5.81
per thousand units in the year-ago quarter. Gross profit per thousand units
increased 1.4% from $4.22 in the second quarter of 1996 to $4.28 in 1997.
Operating expenses -- For the second quarter ended June 30, 1997, selling and
administrative expenses increased by $2.3 million, to 12.0% of sales from 10.2%
of sales compared to the same period in 1996. The increase included increases in
salaries and bonuses, profit sharing and health insurance. In particular, the
Company accrued for profit sharing and bonuses in the second quarter of 1997,
whereas the Company did not accrue for these items in the first half of 1996 due
to business conditions at that time.
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
Net sales -- Net sales increased 3.7% for the six months ended June 30, 1997
compared to the six months ended June 30, 1996. The total increase in net sales
of $10.0 million includes $19.8 million of net sales related to the acquisition
of Quality which is offset by a decrease in net sales on the other U.S. Envelope
operations. The average selling price decreased 8.6% to $19.27 per thousand
units for the six months ended June 30, 1997 from $20.54 per thousand units for
the six months ended June 30, 1996, due mainly to lower paper costs and
competitive pricing pressures. Unit volume increased 10.6% to 14.5 billion units
in the first six months of 1997 from 13.1 billion units in the same period of
1996, indicating that customers have been increasing their volumes at the lower
prices. Material gross margin increased to $11.18 per thousand units in the six
months ended June 30, 1997 from $11.08
6
<PAGE>
per thousand units in the year-ago period. The increase in material gross margin
in the first quarter of 1997 was offset by lower material gross margins in the
second quarter of 1997.
Cost of sales -- Total cost of sales, as a percentage of sales, decreased
from 79.8% in 1996 to 77.5% in 1997. A decrease in average paper costs of
approximately 19% as compared with the prior year period was the major factor in
the reduction in total cost of sales, as was an 8.7% decrease in factory labor
and overhead expenses from $5.76 per thousand units in the first six months of
1996 to $5.26 per thousand units in the 1997 period. Gross profit per thousand
units increased 3.6% from $4.15 in the first half of 1996 to $4.33 in 1997.
Operating expenses -- For the six months ended June 30, 1997, selling and
administrative expenses, as a percent of sales, increased to 12.0% compared to
10.9% from the same period in 1996. The $4.2 million increase includes $1.5
million additional operating expenses as a result of the acquisition of Quality,
increases in salaries and bonuses, profit sharing and health insurance, $2.4
million of which occurred in the second quarter chiefly as a result of accruals
for profit sharing and bonuses which were not made in the year-ago period.
Canadian Envelope
The following table presents financial information with respect to the
Canadian Envelope operations for the quarters and six months ended June 30, 1997
and 1996. All amounts are in U.S. dollars.
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
------------------------- -------------------------
1997 1996 1997 1996
-------------------------------------------------------------------
(dollars in thousands) $ % $ % $ % $ %
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $27,466 100.0 $20,176 100.0 $59,082 100.0 $42,326 100.0
Cost of sales........... 19,017 69.2 14,146 70.1 41,794 70.7 30,309 71.6
Operating expenses...... 4,176 15.2 2,942 14.6 8,746 14.8 5,926 14.0
------- ----- ------- ----- ------- ----- ------- -----
Operating income........ $ 4,273 15.6 $ 3,088 15.3 $ 8,542 14.5 $ 6,091 14.4
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Quarter Ended June 30, 1997 Compared to the Quarter Ended June 30, 1996
Net sales -- Net sales of $27.5 million for the Canadian Envelope segment
included $8.0 million of net sales attributable to PNG. The 1997 net sales for
Supremex of $19.5 million represented a $0.7 million, or 3.5%, decline in net
sales dollars as compared to the quarter ended June 30, 1996. Paper prices
decreased approximately 10% in the quarter ended June 30, 1997 as compared to
paper prices for the quarter ended June 30, 1996, which translates to an
expected decline in selling prices of 4.3%. The average selling price decreased
only 3.1% to $19.58 per thousand units in the most recent quarter as compared to
$20.20 per thousand units for the year-ago quarter. As a result of the Company
exiting certain markets with relatively low selling prices and margins, the
average selling price did not decline as much as expected. Unit volume at
Supremex was stable at 1.0 billion units for both quarters, while unit volume
for Canadian Envelope (including PNG) increased to 1.4 billion units in 1997.
Material gross margin increased from $11.33 per thousand units in the quarter
ended June 30, 1996 to $11.57 per thousand units for the same quarter in 1997.
The higher material gross margin was attributable to the shift away from less
profitable markets.
Cost of sales -- Total cost of sales, as a percentage of sales, decreased
from 70.1% in 1996 to 69.2% in 1997. The gross profit per thousand units
increased 1.0% to $6.11 per thousand units from $6.04 per thousand units in
1996. As PNG's operations are integrated with those of Supremex, the cost of
sales (as a percentage of net sales), is expected to decrease further as
Supremex's operating strategies are applied to PNG's operations.
Operating expenses - As a percentage of sales, operating expenses increased
to 15.2% of net sales for the quarter ended June 30, 1997 from 14.6% of net
sales in the same quarter of 1996 due to the higher cost structure of PNG and
severance payments made in the most recent quarter. Operating expenses as a
percentage of net sales are
7
<PAGE>
expected to decrease as PNG's cost structure is changed to reflect that of
Supremex. Specifically, PNG's costs for administrative expenses exceed the
parameters of Supremex's cost structure.
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
Net sales -- Net sales of $59.1 million for the Canadian Envelope segment
included $17.6 million of net sales attributable to PNG. The net sales for
Supremex of $41.5 million for the six months ended June 30, 1997 represented a
$0.8 million, or 2.0%, decline in net sales dollars as compared to the same
period in 1996. Paper prices decreased 10% in the six months ended June 30, 1997
as compared to paper prices for the six months ended June 30, 1996, which
translates to an expected decline in selling prices of 4.3%. The average selling
price decreased 4.1% to $19.50 per thousand units as compared to $20.33 per
thousand units for the six months ended June 30, 1996. As a result of the
Company exiting certain markets with relatively low selling prices and margins,
the average selling price did not decline as much as expected. Unit volume at
Supremex was stable at 2.1 billion units for both periods, while unit volume for
Canadian Envelope (including PNG) increased to 2.95 billion units in 1997.
Material gross margin increased from $11.21 per thousand units in the year-ago
period to $11.42 per thousand units for the same period in 1997. The higher
material gross margin was attributable to the shift away from less profitable
markets.
Cost of sales -- Total cost of sales, as a percentage of sales, decreased
from 71.6% for the six months ended June 30, 1996 to 70.7% in the same period in
1997. The gross profit per thousand units increased 1.6% to $5.86 per thousand
units from $5.77 per thousand units in 1996. As PNG's operations are integrated
with those of Supremex, the cost of sales (as a percentage of net sales), is
expected to decrease as Supremex's operating strategies are applied to PNG's
operations.
Operating expenses -- As a percentage of sales, operating expenses increased
to 14.8% of net sales for the six months ended June 30, 1997 from 14.0% of net
sales in the year-ago period, due to the higher cost structure of PNG. Operating
expenses as a percentage of net sales are expected to decrease as PNG's cost
structure is changed to reflect that of Supremex. Specifically, PNG's costs for
administrative expenses exceed the parameters of Supremex's cost structure.
High Impact Color Printing
The following table presents financial information with respect to the High
Impact Color Printing operations for the periods ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
1997 1996 1997 1996
(dollars in thousands) $ % $ % $ % $ %
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $40,339 100.0 $24,255 100.0 $81,055 100.0 $67,153 100.0
Cost of sales........... 33,319 82.6 19,494 80.4 67,021 82.7 56,468 84.1
Operating expenses...... 5,255 13.0 3,934 16.2 10,420 12.9 8,976 13.4
------- ----- ------- ----- ------- ----- ------- -----
Operating income........ $ 1,765 4.4 $ 827 3.4 3,614 4.4 $ 1,709 2.5
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
Quarter Ended June 30, 1997 Compared to the Quarter Ended June 30, 1996
Net sales -- Net sales produced at the Company's Graphic Arts Center, Inc.
subsidiary ("GAC") for the quarter ended June 30, 1997 were $26.6 million of the
quarter's net sales for the High Impact Color Printing segment of the Company, a
9.7% increase from the prior year. Net sales produced at SP constituted $13.7
million of the quarter's net sales and represented a decrease of 6.1% compared
with those of the prior year (before SP was owned by the Company). A shift of
annual report work from the first quarter to the second quarter resulted in
increased net annual report sales of $0.8 million in the second quarter of 1997.
Annual report sales to new customers (net of customer losses) added another $0.1
million to net sales in the second quarter of 1997. Catalog and car brochure
sales increases of $1.0 million and $0.4 million, respectively, comprise the
remainder of the $2.4 million increase in GAC net sales. The increase in catalog
sales includes $0.8 million from a new client; the remaining increase was due to
changes in existing customer orders. The sales increase from car brochures was
from an existing client; net sales in
8
<PAGE>
this time period for car brochures was unusual. The decrease in sales at SP (as
compared to the same period in 1996) was due, primarily, to one client that was
acquired by another company which caused a temporary delay in its highly
seasonal production cycle; the sales volumes attributable to this customer are
expected to occur in the third quarter.
Cost of sales -- For GAC, the total cost of sales as a percentage of net
sales increased from 80.4% in the second quarter of 1996 to 82.6% in the second
quarter of 1997. Cost of sales for GAC and SP totaled $22.3 million and $11.0
million, respectively. Due to changes in the mix of paper used in its
operations, the declining paper market had a negligible effect on cost of sales
at GAC. The $2.8 million increase in cost of sales related to GAC included $1.9
million which correlates to the increase in the sales. The remaining $0.9
million increase included $0.5 million for outside tradework paid for
specialties which could not be done in-house. Increased wages required another
$0.3 million. SP cost of sales of $11.0 million is included in the 1997 amount
and represents 80.6% of SP's sales which is consistent with the second quarter
of 1996 (before SP was owned by the Company).
Operating expenses -- Total operating expense was $1.3 million higher than
the amount for the quarter ended June 30, 1996. This increase included $1.6
million of operating expenses related to SP offset by $0.3 million in operating
expense reductions implemented by the GAC operations of the High Impact Color
Printing segment. The GAC reductions were almost exclusively due to declines in
selling expenses, including sales commissions and sales salaries, as certain
sales representatives were moved to full-commission status from salaried status
and lower unit prices reduced commission expense. Additional reductions were
made to the travel and entertainment and information services costs.
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
Net sales -- Net sales produced at GAC for the six months ended June 30, 1997
were $55.3 million, a 17.6% decrease from the prior year. Net sales produced at
SP constituted $25.7 million of the net sales for the six months ended June 30,
1997 and represented a decrease of 4.1% compared with those of the prior year
(before SP was owned by the Company). This decline in net sales at GAC was due
to the Company targeting higher margin markets and allocating sales resources to
those markets; the remarketing effort has caused a decline in sales volumes.
Operating income margins for the High Impact Color Printing segment of the
Company have increased to 4.4% of net sales from 2.5% of net sales. Another
factor affecting the decline in sales dollars was the decrease in paper costs
between 1996 and 1997 which caused a corresponding decrease in net sales
dollars.
Cost of sales -- Total cost of sales decreased to 82.7% of sales for the six
months ended June 30, 1997 as compared to 84.1% for the six months ended June
30, 1996. Cost of sales for GAC and SP totaled $45.4 million and $21.6 million,
respectively. The $11.1 million decline in GAC's cost of sales was comprised of
declines in paper prices and other manufacturing costs. Reduction in paper
prices, coupled with improved corporate purchasing power, resulted in lower
paper costs of approximately $5.9 million as compared with the six months ended
June 30, 1996. Outside tradework declined both as a percentage of revenue and by
$1.5 million in nominal dollars. A reduction in factory costs constituted the
remainder of the favorable variance and corresponds largely to the downward
movement in volumes. Improved control over overtime and factory chargeability
also yielded favorable variances. SP cost of sales of $21.6 million is included
in the 1997 figure and represents 84.1% of SP's sales. The comparable figure for
SP in 1996 was $23.2 million or 86.5% of SP's sales.
Operating expenses -- Total operating expense was $1.4 million greater for
the six months ended June 30, 1997 than that recorded for the six months ended
June 30, 1996. The increase included $2.8 million of operating expenses related
to SP offset by $1.4 million in operating expense reductions implemented by the
GAC operations of the High Impact Color Printing segment. The GAC reductions are
almost exclusively due to declines in selling expenses including sales
commissions and sales salaries. These reductions occurred as GAC has moved
certain sales representatives to full-commission status from salaried status and
lower unit prices have reduced commission expense. Additionally, reductions have
been made to the travel and entertainment and information services costs.
9
<PAGE>
Corporate Expenses
Cost of sales -- operating lease expenses - Certain property, plant and
equipment of the Company was sold as part of a sales/leaseback transaction in
the fourth quarter of 1996. The expense amounts represent the operating lease
payments for the quarter and six month periods ending June 30, 1997; there was
no comparable expense in the quarter or six months ended June 30, 1996.
Operating expenses -- Total operating expenses decreased by $1.2 million (or
30%) in the quarter ended June 30, 1997 compared to the quarter ended June 30,
1996, and increased $0.7 million for the six months ended June 30, 1997 compared
to the six months ended June 30, 1996. The decrease in operating expenses for
the quarter offset the increase in expenses recorded for the first quarter ended
March 31, 1997, primarily as a result of certain corporate expenses, including
the annual report and proxy statements, having been incurred in the earlier
quarter in 1997. Included in operating expenses in the quarter and six months
ended June 30, 1997 is $0.3 million and $0.5 million, respectively, of
administrative expenses related to the accounts receivable securitization
program. Also included in this figure is the loss on disposal of assets. The
majority of the loss on disposal of assets relates to building and equipment
costs written off related to the closing of the Pittsburgh warehouse and
reorganizations of the plants in Salt Lake City and Chicago. In 1996, the loss
on disposal of assets included costs to relocate the Philadelphia plant and
consolidate the Texas facilities.
Interest expense-debt -- Interest expense decreased for the quarter ended
June 30, 1997 as compared to the quarter ended June 30, 1996 primarily as a
result of the lower average bank debt balance of $160.6 million in 1997 as
compared to $216.0 million in 1996. The bank debt restructuring, the
sale/leaseback transaction and the accounts receivable securitization
transaction resulted in the reduction of outstanding debt balances toward the
end of 1996. The average interest rate of 7.7% for the six months ended June 30,
1997 was less than the average interest rate of 8.1% for the same period in
1996.
Discount on sale of accounts receivable -- This amount represents expenses
related to the accounts receivable securitization program, including an
effective interest rate of approximately 5.6% and associated utilization fees.
Since the program was implemented in November 1996, there are no appropriate
comparisons for previous periods.
Other (income) expense -- This line item includes a $0.3 million foreign
exchange gain and $0.6 million of interest income earned from the investment of
funds in cash equivalents for the six months ended June 30, 1997.
Income taxes -- The effective tax rate for the quarter and six months ended
June 30, 1997 was 42.3% and 42.4%, respectively, as compared to an effective tax
rate of 42.8% for the quarter and six months ended June 30, 1996. The effective
tax rate for all periods was higher than the federal statutory rate due to state
and provincial income taxes. Additionally, certain goodwill amortization and a
portion of the employee stock ownership contribution are not tax deductible.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAIL-WELL, INC.
(Registrant)
By /s/ PAUL V. REILLY
--------------------------
Paul V. Reilly
Senior Vice President,
Chief Financial Officer
October 24, 1997
10
