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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[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 1. Financial Statements 3
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(Unaudited)
June 30, December 31,
1997 1996
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CURRENT ASSETS
Cash and cash equivalents $ 12,523 $ 9,656
Receivables, net 35,954 40,612
Accounts receivable - other 10,108 7,743
Income tax receivable, net 2,374 3,504
Inventories 73,001 68,275
Deferred tax asset 2,361 2,309
Other current assets 4,933 3,513
--------- ---------
Total current assets 141,254 135,612
PROPERTY, PLANT AND EQUIPMENT - NET 187,857 183,302
DEFERRED FINANCING COSTS - NET 13,207 14,497
GOODWILL - NET 128,451 128,812
OTHER ASSETS - NET 8,863 8,723
--------- ---------
TOTAL $ 479,632 $ 470,946
========= =========
CURRENT LIABILITIES
Accounts payable $ 38,931 $ 44,539
Accrued compensation and vacation 23,952 23,312
Accrued interest 5,429 4,455
Other current liabilities 28,222 26,206
Current portion of long-term debt
and capital leases 15,575 14,975
--------- ---------
Total current liabilities 112,109 113,487
ACCRUED PENSION 1,330 1,284
CAPITAL LEASES 2,817 2,958
BANK BORROWINGS 112,853 121,992
SUBORDINATED NOTES 85,000 85,000
DEFERRED INCOME TAXES 27,099 23,153
OTHER LONG TERM LIABILITIES 3,559 1,865
--------- ---------
Total liabilities 344,767 349,739
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value;
25,000 shares authorized, none
issued and outstanding - -
Common stock, $0.01 par value;
30,000,000 shares authorized,
18,774,562 and 19,414,242 shares
issued and 18,774,562 and 18,731,130
(including 1,948,272 shares held by ESOP)
outstanding, respectively 188 194
Paid-in capital 97,689 98,216
Retained earnings 40,188 27,631
Unearned ESOP compensation (2,832) (2,896)
Cumulative foreign currency translation
adjustment (258) (115)
Pension liability adjustment (110) (110)
Treasury stock - at cost; 683,112 shares
outstanding at December 31, 1996 - (1,713)
--------- ---------
Total stockholders' equity 134,865 121,207
--------- ---------
TOTAL $ 479,632 $ 470,946
========= =========
See notes to unaudited consolidated financial statements.
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MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(DOLLARS IN THOUSANDS)
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Quarter Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---------- ----------- ----------- -----------
NET SALES $ 207,482 $ 185,110 $ 419,514 $ 378,835
COST OF SALES
Materials 85,456 84,474 175,414 175,404
Labor and other 60,657 48,838 119,674 102,132
Manufacturing 14,025 10,300 29,566 21,037
Depreciation 3,324 3,993 6,679 7,478
Waste recovery (2,261) (1,877) (4,734) (4,292)
----------- ----------- ----------- -----------
Total cost of sales 161,201 145,728 326,599 301,759
GROSS PROFIT 46,281 39,382 92,915 77,076
OTHER OPERATING COSTS
Selling 15,609 13,629 31,030 27,661
Administrative 12,120 10,112 25,165 20,132
Amortization 940 988 2,057 1,934
Loss on disposal of assets 351 598 1,222 598
---------- ----------- ----------- -----------
Total other
operating costs 29,020 25,327 59,474 50,325
OPERATING INCOME 17,261 14,055 33,441 26,751
OTHER EXPENSE
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 BEFORE INCOME TAXES 11,402 6,320 21,811 11,149
PROVISION FOR INCOME TAXES
Current 3,103 2,217 5,654 3,426
Deferred 1,723 491 3,600 1,344
----------- ----------- ----------- -----------
NET INCOME $ 6,576 $ 3,612 $ 12,557 $ 6,379
=========== =========== =========== ===========
NET INCOME PER SHARE $ 0.35 $ 0.20 $ 0.68 $ 0.36
WEIGHTED AVERAGE SHARES
OUTSTANDING 18,565,921 17,824,593 18,362,111 17,802,282
See notes to unaudited consolidated financial statements.
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MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(DOLLARS IN THOUSANDS)
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Six Months Ended June 30,
1997 1996
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,557 $ 6,379
Adjustments to reconcile net income to cash
provided by operations
Depreciation 6,679 7,478
Amortization 3,505 3,414
Deferred tax provision 3,600 1,344
Loss on disposal of assets 1,222 598
ESOP compensation expense 68 1,089
Other 100 (125)
Change in operating assets and liabilities
Receivables 3,593 12,608
Current income taxes 1,073 597
Inventories (3,038) 9,971
Accounts payable (4,285) (1,489)
Accrued interest 974 (1,052)
Other working capital 4,843 (4,544)
Accrued pension, current and long term (139) 115
Other assets and other long-term liabilities (895) (192)
--------- ---------
Net cash provided by operating activities 29,857 36,191
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs (6,235) (25,610)
Capital expenditures (12,658) (7,133)
Proceeds from sale of property, plant and equipment 152 2,101
Maturity of temporary cash investments - 250
--------- ---------
Net cash used in investing activities (18,741) (30,392)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock issuance 123 15
Cash overdrafts 810 (2,734)
Proceeds from long-term debt 9,000 99,639
Repayments of long-term debt (17,472) (102,392)
Repayments of capital lease obligations (395) (326)
--------- ---------
Net cash used in financing activities (7,934) (5,798)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (315) (1)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 2,867 0
BALANCE AT BEGINNING OF PERIOD 9,656 0
--------- ---------
BALANCE AT END OF PERIOD $ 12,523 $ 0
========= =========
NON-CASH FINANCING ACTIVITIES
Cash paid for interest $ 8,131 $ 15,197
Cash paid for taxes 5,163 2,824
Issuance of common stock for compensation 0 51
See notes to unaudited consolidated financial statements.
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MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
Nature of Operations - Mail-Well, Inc. (the "Company") is one of the
largest printers in North America, manufacturing both envelopes and high
impact color commercial work. Within envelope printing, the Company
competes in the consumer direct segment in which envelopes are designed and
manufactured to customer specifications. In addition, the Company
manufactures envelopes sold into the office products market. The Company
is also a leading high impact commercial printer specializing in printing
advertising literature, high-end catalogs, annual reports, calendars and
computer instruction books and is recognized as an innovative provider of
quality printed products to leading companies in the United States. The
Company commenced operations on February 24, 1994 with the acquisition of
the envelope businesses of Georgia-Pacific Corporation ("GP Envelope") and
Pavey Envelope and Tag Corp. ("Pavey").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
for all periods presented include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Interim Financial Information - The interim financial information
contained herein is unaudited and includes all normal and recurring
adjustments which, in the opinion of management, are necessary to present
fairly the information set forth. The consolidated financial statements
should be read in conjunction with the Notes to the Consolidated Financial
Statements which are included in the Company's Form 10-K. The results for
interim periods are not necessarily indicative of results to be expected
for the fiscal year of the Company ending December 31, 1997. The Company
believes that the report filed on Form 10-Q is representative of its
financial position, its results of operations and its cash flow for the
quarter and six months ended June 30, 1997 and 1996.
Employee Stock Ownership Plan - Unearned ESOP compensation balance is
presented in the accompanying financial statements as a reduction of
equity. As the ESOP shares are allocated to participants, the unearned
ESOP compensation balance will decrease and compensation expense will be
recorded.
Earnings Per Share - In June 1997, the Company's common stock split
3:2; all shares and per share information has been retroactively restated
to reflect the conversion.
Net income per share is computed by dividing net income by the weighted
average number of common shares. Common shares outstanding excludes
unallocated and uncommitted shares held by the ESOP.
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common shares 17,840,479 17,484,683 17,808,467 17,480,645
Common stock equivalents 725,442 339,910 553,644 321,637
---------- ---------- ---------- ----------
Total shares outstanding 18,565,921 17,824,593 18,362,111 17,802,282
========== ========== ========== ==========
</TABLE>
Reclassification - Certain amounts in the 1996 financial statements have been
reclassified to conform to 1997 presentation.
6
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3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (in thousands)
<TABLE>
<CAPTION>
Inventories:
June 30, 1997 December 31, 1996
<S> <C> <C>
Raw materials $ 25,922 $ 25,953
Work in process 7,982 7,549
Finished goods 41,728 37,385
Reserve for obsolescence and loss (2,631) (2,612)
-------- --------
Total $ 73,001 $ 68,275
======== ========
Property, plant and equipment:
June 30, 1997 December 31, 1996
Land and land improvements $ 11,698 $ 11,429
Buildings 50,645 45,385
Leasehold improvements 2,390 3,627
Machinery and equipment 125,977 124,028
Furniture and fixtures 3,332 3,066
Automobiles and trucks 587 556
Computers and software 9,897 7,457
Assets under capital lease 1,502 3,584
Construction in progress 10,608 6,576
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216,636 205,708
Less accumulated depreciation (28,779) (22,406)
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Total $187,857 $183,302
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4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
June 30, 1997 December 31, 1996
Bank borrowings:
Revolving credit loans $ 0 $ 768
Term loans 127,788 135,000
Subordinated notes 85,000 85,000
Other 229 651
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213,017 221,419
Less current maturities (15,164) (14,427)
-------- --------
Long-term debt $197,853 $206,992
======== ========
</TABLE>
The bank credit agreements of the Company include a $30.0 million
revolving credit facility, a C$10.0 million revolving credit facility,
$135.0 million of term loans, a $30.0 million acquisitions loan facility, a
$12.0 million letter of credit facility and a C$8.0 million letter of
credit facility. The Company's obligations under the bank credit agreement
are secured by substantially all of the assets of the domestic subsidiaries
of the Company and by 66% of the common stock of a Canadian subsidiary.
An interest rate cap agreement is used to reduce the potential impact
of increases in the rates on floating-rate long-term debt. At June 30,
1997, the Company was party to an interest rate cap agreement for the
notional amount of $55.0 million which provides an effective LIBOR interest
rate cap of 9.0% and expires June 30, 1999. The agreement entitles the
Company to receive from counterparties the amounts, if any, by which the
Company's interest payments exceed the interest rate cap.
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5. PRO FORMA EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 establishes standards for computing and presenting
earnings per share and applies to all entities with publicly held common
stock or potential common stock. SFAS 128 replaces the presentation of
primary earnings per share and fully diluted earnings per share with a
presentation of basic earnings per share and diluted earnings per share,
respectively. Basic earnings per share excludes dilution and is computed
by dividing earnings available to common stockholders by the weighted
average number of common shares outstanding for the period. Similar to
fully diluted earnings per share, diluted earnings per share reflects the
potential dilution of securities that could share in the earnings. SFAS
128 is effective for periods ending after December 15, 1997, including
interim periods, and will require restatement of all prior period earnings
per share data presented; earlier application is not permitted. The
following pro forma disclosure illustrates earnings per share if calculated
in accordance with SFAS 128. The unallocated shares issued under the
Employee Stock Ownership Plan are excluded from both the basic and diluted
earnings per share calculations.
<TABLE>
<CAPTION>
Income Shares Per-Share
(dollars in thousands) (Numerator) (Denominator) Amount
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For the Quarter Ended June 30, 1997
-----------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common
stockholders $ 6,576 17,840,479 $0.37
======
Effect of Dilutive Securities
Stock options, primarily 0 725,442
------- ----------
Diluted Earnings Per Share
Income available to common
stockholders
including assumed conversions $ 6,576 18,565,921 $0.35
======= ========== ======
For the Quarter Ended June 30, 1996
-----------------------------------
Basic Earnings Per Share
Income available to common
stockholders $ 3,612 17,484,683 $0.21
======
Effect of Dilutive Securities
Stock options, primarily 0 339,910
------- ----------
Diluted Earnings Per Share
Income available to common
stockholders including assumed
conversions $ 3,612 17,824,593 $0.20
======= ========== ======
For the Six Months Ended June 30, 1997
--------------------------------------
Basic Earnings Per Share
Income available to common
stockholders $12,557 17,808,467 $0.71
======
Effect of Dilutive Securities
Stock options, primarily 0 553,644
------- ----------
Diluted Earnings Per Share
Income available to common
stockholders including assumed
conversions $12,557 18,362,111 $0.68
======= ========== ======
</TABLE>
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<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1996
--------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders $6,379 17,480,645 $0.36
=====
Effect of Dilutive Securities
Stock options, primarily 0 321,637
------ ----------
Diluted Earnings Per Share
Income available to common stockholders
including assumed conversions $6,379 17,802,282 $0.36
====== ========== =====
</TABLE>
6. STOCK OPTIONS
On March 31, 1997, the Company's Board of Directors adopted a non-
qualified stock option plan for key employees and directors, authorizing
future grants of stock options to purchase up to 975,000 shares of the
Company's common stock. Also at that time, stock options were granted
under the non-qualified stock option plan for the purchase of up to
approximately 600,000 shares of common stock, in addition to the granting
of stock options under the Company's 1994 stock option plan for the
purchase of approximately 187,500 shares of common stock. The exercise
price of all options granted equals or exceeds the fair market value of the
Company's common stock on the date of grant.
7. ACQUISITIONS
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 south eastern 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.
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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
September 11, 1997
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