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=========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number 1-12551
MAIL-WELL, INC.
ADDITIONAL AFFILIATE ISSUERS AND/OR GUARANTORS LISTED ON SCHEDULE
ATTACHED HERETO
(Exact name of Registrant as specified in its charter.)
COLORADO 84-1250533
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
23 Inverness Way East, Suite 160, Englewood, CO 80112
(Address of principal executive offices) (Zip Code)
303-790-8023
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECKMARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes /X/ No / /
As of August 6, 1999, the Registrant had 48,976,185 shares of Common
Stock, $0.01 par value, outstanding.
=========================================================================
<PAGE>
<PAGE>
<TABLE>
SCHEDULE OF ADDITIONAL AFFILIATE ISSUERS AND/OR GUARANTORS
<CAPTION>
Exact Name of Guarantor Primary Standard I.R.S. Employer
Registrants as Specified in State of Industrial Identification
Their Respective Charters Formation Classification Number Number
------------------------- --------- --------------------- ---------------
<S> <C> <C> <C>
Mail-Well I Corporation Delaware 2677 84-1250534
Graphics Arts Center, Inc. Delaware 2752 93-1008554
Mail-Well Commercial Printing, Inc. Delaware 2752 84-1461875
Mail-Well Canada Holdings, Inc. Delaware 6719 84-1313090
Mail-Well Label Holdings, Inc. Colorado 6719 84-1449291
Mail-Well Label USA, Inc. Colorado 2752 84-1449292
Mail-Well West, Inc. Delaware 2677 84-1313079
Mail-Well I Corporation Colorado 2677 84-1250533
Murray Envelope Holdings, Inc. Colorado 6719 84-1421627
Murray Envelope Corporation Mississippi 2677 64-0271038
N-M Envelope, Inc. Mississippi 2677 64-0840384
National Graphics Company Colorado 2761 84-0692676
Poser Business Forms, Inc. Delaware 2761 75-2195786
Wisco II, L.L.C. Delaware 2677 84-1313080
Wisco Envelope Corp. Tennessee 2677 62-1555311
</TABLE>
2
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<PAGE>
MAIL-WELL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
PAGE
----
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 29
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders 30
Item 6. Exhibits and Reports on Form 8-K 30
Signature Page 33
3
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 10,597 $ 1,375
Receivables, net 154,970 130,523
Investment in accounts receivable securitization 3,925 47,069
Accounts receivable -- other 13,816 12,686
Income tax receivable 2,912 10,715
Inventories, net 138,685 114,131
Other current assets 21,383 19,351
---------- ----------
Total current assets 346,288 335,850
PROPERTY, PLANT AND EQUIPMENT, NET 505,961 437,732
GOODWILL, NET 421,091 322,149
OTHER ASSETS, NET 28,075 32,225
---------- ----------
TOTAL $1,301,415 $1,127,956
========== ==========
CURRENT LIABILITIES
Accounts payable $ 114,995 $ 87,023
Accrued compensation and vacation 48,642 41,401
Other current liabilities 46,672 47,192
Current portion of long-term debt and capital leases 9,338 8,036
---------- ----------
Total current liabilities 219,647 183,652
LONG-TERM DEBT AND CAPITAL LEASES 673,225 583,427
DEFERRED INCOME TAXES 55,265 47,534
OTHER LONG-TERM LIABILITIES 12,495 10,468
---------- ----------
Total liabilities 960,632 825,081
MINORITY INTEREST IN NON VOTING STOCK OF SUBSIDIARY 3,500 3,500
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value; 25,000 shares authorized, none
issued and outstanding - -
Common stock, $0.01 par value; 100,000,000 shares authorized,
48,996,224 and 48,846,904 shares issued and outstanding,
respectively (including 3,896,544 shares held by ESOP) 490 488
Paid-in capital 217,919 217,218
Retained earnings 120,496 90,740
Accumulated other comprehensive income (loss) (1,622) (9,071)
---------- ----------
Total shareholders' equity 337,283 299,375
---------- ----------
TOTAL $1,301,415 $1,127,956
========== ==========
See notes to unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $439,046 $350,059 $879,463 $668,793
COST OF SALES 331,704 279,632 672,456 529,319
-------- -------- -------- --------
GROSS PROFIT 107,342 70,427 207,007 139,474
OTHER OPERATING COSTS
Selling, administrative and other 68,425 44,789 130,462 88,059
Merger costs - 771 - 3,002
-------- -------- -------- --------
Total other operating costs 68,425 45,560 130,462 91,061
-------- -------- -------- --------
OPERATING INCOME 38,917 24,867 76,545 48,413
OTHER (INCOME) EXPENSE
Interest expense 14,049 7,763 26,816 15,153
Other (income) expense (528) (482) (704) (1,085)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 25,396 17,586 50,433 34,345
PROVISION FOR INCOME TAXES 10,412 6,287 20,677 13,513
-------- -------- -------- --------
NET INCOME $ 14,984 $ 11,299 $ 29,756 $ 20,832
======== ======== ======== ========
EARNINGS PER SHARE - BASIC $ 0.31 $ 0.24 $ 0.61 $ 0.46
EARNINGS PER SHARE - DILUTED $ 0.28 $ 0.22 $ 0.56 $ 0.42
WEIGHTED AVERAGE SHARES - BASIC 48,967 46,790 48,915 45,155
WEIGHTED AVERAGE SHARES - DILUTED 58,350 56,786 58,300 55,245
See notes to unaudited consolidated financial statements.
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30,
--------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 29,756 $ 20,832
Adjustments to reconcile net income to cash provided by
operations
Depreciation and amortization 27,298 18,606
Deferred income taxes 5,790 3,172
Other 2,317 1,429
Changes in operating assets and liabilities, net of effects
of acquired businesses:
Receivables 8,932 (2,211)
Inventories (11,797) (2,686)
Accounts payable 3,412 (5,893)
All other assets and other liabilities 8,942 (8,303)
--------- ---------
Net cash provided by operating activities 74,650 24,946
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs, net of cash acquired (162,569) (254,623)
Capital expenditures (39,693) (31,255)
Other investing activities 1,584 690
--------- ---------
Net cash used in investing activities (200,678) (285,188)
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in accounts receivable securitization, net 43,222 6,945
Net proceeds from common stock issuance 703 92,268
Proceeds from long-term debt 241,805 337,130
Repayments of long-term debt and capital leases (149,504) (186,092)
Other financing activities (972) (3,658)
--------- ---------
Net cash provided by financing activities 135,254 246,593
EFFECT OF EXCHANGE RATE CHANGES ON CASH (4) (2,301)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 9,222 (15,950)
BALANCE AT BEGINNING OF PERIOD 1,375 40,911
--------- ---------
BALANCE AT END OF PERIOD $ 10,597 $ 24,961
========= =========
See notes to unaudited consolidated financial statements.
</TABLE>
6
<PAGE>
<PAGE>
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS -- Mail-Well, Inc. and subsidiaries
(collectively referred to as the "Company") is one of the largest
printers in North America. The Company is a leading commercial printer
in the United States and prints and manufactures envelopes in the United
States and Canada. The Company is also a printer of custom business
documents for the distributor market and a printer of labels for the
food and beverage industry.
PRINCIPLES OF CONSOLIDATION -- The Company, headquartered in
Englewood, Colorado, is organized under Colorado law and its common
stock is traded on the New York Stock Exchange (ticker: MWL). These
financial statements include the accounts of the Company and its
majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
INTERIM FINANCIAL INFORMATION -- The interim financial information
contained herein is unaudited and includes all normal and recurring
adjustments which, in the opinion of management, are necessary to
present fairly the information set forth. The consolidated financial
statements should be read in conjunction with the Notes to the
Consolidated Financial Statements, which are included in the Company's
Form 10-K. The results for interim periods are not necessarily
indicative of results to be expected for the Company's fiscal year
ending December 31, 1999.
INVENTORIES -- Detail of inventories, in thousands:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Raw materials $ 53,857 $ 45,720
Work in process 28,977 22,089
Finished goods 61,313 49,256
Reserve for obsolescence, loss and other (5,462) (2,934)
-------- --------
$138,685 $114,131
======== ========
</TABLE>
SHAREHOLDERS' EQUITY -- The change in Common Stock and Paid-in
Capital is caused by the exercise of stock options. The change in
Retained Earnings is net income. See "Other Comprehensive Income" for
an explanation of the change in those accounts.
OTHER COMPREHENSIVE INCOME -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", was adopted January
1, 1998. This statement requires reporting of changes in shareholders'
equity that do not result directly from transactions with shareholders.
A summary of comprehensive income follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(in thousands)
Net income $ 14,984 $ 11,299 $ 29,756 $ 20,832
Currency translation adjustments, net 3,704 (2,044) 7,231 (1,742)
Unrealized loss on investments, net 184 169 218 37
-------- -------- -------- --------
Comprehensive income $ 18,872 $ 9,424 $ 37,205 $ 19,127
======== ======== ======== ========
</TABLE>
EARNINGS PER SHARE -- In June 1998 the Company's common stock
split 2:1; all share and per share information has been retroactively
restated to reflect these splits. The unallocated shares issued under
the Employee Stock Ownership Plan are excluded from both the basic and
diluted earnings per share calculations.
7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30, 1999
EARNINGS PER SHARE - BASIC
Income available to common shareholders $14,984 48,967 $0.31
=====
EFFECT OF DILUTIVE SECURITIES
Stock options - 1,160
Convertible Subordinated Notes 1,313 8,003
Other - 220
------- ------
EARNINGS PER SHARE - DILUTED
Income available to common shareholders including
assumed conversions $16,297 58,350 $0.28
======= ====== =====
FOR THE THREE MONTHS ENDED JUNE 30, 1998
EARNINGS PER SHARE - BASIC
Income available to common shareholders $11,299 46,790 $0.24
=====
EFFECT OF DILUTIVE SECURITIES
Stock options - 1,698
Convertible Subordinated Notes 1,083 8,003
Other - 295
------- ------
EARNINGS PER SHARE - DILUTED
Income available to common shareholders including
assumed conversions $12,382 56,786 $0.22
======= ====== =====
FOR THE SIX MONTHS ENDED JUNE 30, 1999
EARNINGS PER SHARE - BASIC
Income available to common shareholders $29,756 48,915 $0.61
=====
EFFECT OF DILUTIVE SECURITIES
Stock options - 1,162
Convertible Subordinated Notes 2,626 8,003
Other - 220
------- ------
EARNINGS PER SHARE - DILUTED
Income available to common shareholders including
assumed conversions $32,382 58,300 $0.56
======= ====== =====
FOR THE SIX MONTHS ENDED JUNE 30, 1998
EARNINGS PER SHARE - BASIC
Income available to common shareholders $20,832 45,155 $0.46
=====
EFFECT OF DILUTIVE SECURITIES
Stock options - 1,817
Convertible Subordinated Notes 2,166 8,003
Other - 270
------- ------
EARNINGS PER SHARE - DILUTED
Income available to common shareholders including
assumed conversions $22,998 55,245 $0.42
======= ====== =====
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS -- In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (the "Statement"). The Statement, which will be effective
beginning in the year 2001, requires derivative instruments to be
recorded in the balance sheet at their fair value with changes in fair
value being recognized in earnings unless specific hedging accounting
criteria are met. The Company has minimal hedging and derivative
activity, but it has not determined the impact of this statement on its
operations and financial position.
8
<PAGE>
<PAGE>
In March 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position (SOP) 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use". The SOP,
which has been adopted prospectively as of January 1, 1999, requires the
capitalization of certain costs incurred in connection with developing
or obtaining internal use software. Prior to the adoption of the SOP,
the Company expensed all internal use software related internal costs as
incurred. The effect of adopting the SOP was immaterial to the three
and six months ended June 30, 1999 and is not expected to have a
material impact on earnings going forward.
RECLASSIFICATION -- Certain amounts in the 1998 financial
statements have been reclassified to conform to the 1999 presentation.
2. MERGERS WITH COMMERCIAL PRINTING COMPANIES
Effective May 30, 1998, the Company completed its mergers with
seven commercial printing companies through the exchange of common
stock, which had a market value of $21.965 per share, as shown in the
table below:
<TABLE>
<CAPTION>
SHARES OF MAIL-WELL
OPERATING COMPANY NAME COMMON STOCK EXCHANGED
---------------------- ----------------------
<S> <C>
Color Art, Inc. ("Color Art") 2,351,951
Accu-color, Inc. ("Accu-color") 622,391
Industrial Printing Company ("Industrial Printing") 570,161
IPC Graphics, Inc. ("IPC Graphics") 325,973
United Lithograph, Inc. ("United Lithograph") 519,568
French Bray, Inc. ("French Bray") 538,040
Clarke Printing, Co. ("Clarke Printing") 437,984
</TABLE>
The consolidated financial statements give retroactive effect to
the mergers, which have been accounted for using the pooling of
interests method and, as a result, the financial position, results of
operations and cash flows are presented as if the combining companies
had been consolidated for all periods presented. The consolidated
balance sheets reflect the accounts of the Company as if the additional
common stock had been issued during all periods presented.
The companies listed above are hereafter collectively referred to
as the Pooled Companies.
Each of the mergers was negotiated and consummated as separate
transactions and the separate mergers were not contingent upon each
other. Except for French Bray and Clarke Printing, all of the above
entities had elected Subchapter S corporation treatment for U.S. federal
income tax purposes and, accordingly, did not pay U.S. federal income
taxes. Subsequent to May 30, 1998, these companies were included in
Mail-Well's consolidated U.S. federal income tax return. In connection
with the mergers, the Company also issued common stock to acquire the
net assets (including the assumption of the debt associated with such
assets) of certain related real estate ventures owned by shareholders of
the commercial printing companies. The shares of the Company's common
stock exchanged for real estate assets are included with the shares
exchanged for the respective operating company in the table above. The
results of operations and financial conditions of the real estate assets
are reflected in the restated consolidated financial statements with
significant intercompany transactions and balances eliminated. The
mergers with the real estate entities have been accounted for as taxable
business combinations and the recognizable tax benefits attributable to
the increase in tax basis were allocated to additional paid-in capital.
Each of the above transactions has been accounted for individually
as a pooling of interests and, accordingly, the consolidated financial
statements for the periods subsequent to February 24, 1994 (inception)
have been restated to include the accounts of the Pooled Companies.
Prior to the mergers, Industrial Printing's and IPC Graphics' fiscal
year ended on September 30, United Lithograph's fiscal year ended on
June 30 and French Bray's fiscal year ended on July 31. Accordingly,
the accompanying financial statements include those financial statements
of entities with
9
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<PAGE>
different fiscal years restated on a calendar year basis. Additionally,
the accompanying consolidated financial statements reflect certain minor
adjustments to conform the accounting policies of the Pooled Companies
to the Company's.
Net sales and net income of the separate companies for the periods
preceding the mergers were as follows:
<TABLE>
<CAPTION>
UNAUDITED
UNAUDITED PRO FORMA
NET PRO FORMA DILUTED
NET INCOME NET INCOME EARNINGS
SALES (LOSS)<F1> (LOSS)<F2> PER SHARE
----- ---------- ---------- ---------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
QUARTER ENDED MARCH 31, 1998
Mail-Well, Inc. as previously reported $274,705 $9,510 $9,510
Color Art 18,199 (173) (481)
Accu-Color 3,036 215 47
Industrial Printing 5,690 219 63
IPC Graphics 2,960 45 (19)
United Lithograph 5,532 (91) (170)
French Bray 5,756 (258) (258)
Clarke Printing 2,856 66 66
-------- ------ ------
Pooled entities 44,029 23 (752)
-------- ------ ------
$318,734 $9,533 $8,758 $0.18
======== ====== ====== =====
<FN>
<F1> Income (loss) includes aggregate merger expenses of the Pooled
Companies totaling $2.2 million in the first quarter of 1998.
These costs consist primarily of investment banking, legal and
accounting fees.
<F2> Unaudited pro forma net income reflects adjustments to net income
to record an estimated provision for income taxes for each period
presented assuming Color Art, Accu-color, Industrial Printing, IPC
Graphics and United Lithograph were tax paying entities.
</TABLE>
3. ACQUISITIONS
On February 2, 1999, the Company acquired Colorhouse, Inc., a pre-
press company located in Minneapolis, Minnesota, with approximate annual
sales of $20.7 million. On February 4, 1999, the Company acquired Hill
Graphics, a sheetfed commercial printer located in Houston, Texas, with
approximate annual sales of $20.5 million. On May 29, 1999, the Company
acquired Forman Lithograph, Inc., a commercial printer located in San
Francisco, California, with approximate annual sales of $6.5 million.
On June 1, 1999, the Company acquired Avon Behren Printing Company, a
commercial printer located in San Antonio, Texas, with approximate
annual sales of $4.5 million. On June 1, 1999, the Company also
acquired Design Manufacturing, Inc., a pressure sensitive label company
located in Wareham, Massachusetts, with approximate annual sales of $13
million.
On March 17, 1999, the Company commenced a formal tender offer to
purchase all of the shares of Porter Chadburn plc, a label manufacturing
company based in England with a substantial portion of its operations in
the United States, for a price of approximately $.63 per share (38.5
pence) in cash. The total purchase price, including the assumption of
debt and transaction costs was approximately $101.5 million. Porter
Chadburn earned $7.3 million (pre-tax) on sales of $125.5 million for
its fiscal year ended March 27, 1999. (All U.S. dollar amounts are based
upon an exchange rate for British pounds of $1.642). As of April 8,
1999, the Company gained control of Porter Chadburn through acceptances
of its offers. Therefore, beginning with that date, the operations of
Porter Chadburn have been consolidated in the operations of the Company.
These acquisitions have been accounted for as purchases and,
accordingly, the net purchase price of each acquisition was allocated to
the various assets and liabilities according to their estimated fair
values as of the date of
10
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<PAGE>
the respective purchase. The results of operations of each of the
acquisitions have been included in the accompanying consolidated
statements of operations from the date of the acquisition.
Certain purchase agreements require the payment of additional
consideration in the form of cash payments if specific operating
performance criteria are met. Any subsequent payment will be allocated
to goodwill. In addition, the purchase price allocation to inventory,
property, plant and equipment and restructuring charges for closing
certain plants for certain acquisitions have not been finalized.
Therefore, the amount of goodwill could be adjusted within one year of
the purchase.
4. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
INTEREST RATE AT
JUNE 30, 1999 JUNE 30, 1999 DECEMBER 31, 1998
------------- ------------- -----------------
<S> <C> <C> <C>
Bank Borrowings:
Unsecured loan, due June 9, 2003 6.88 % $ 24,239 $ 25,461
Unsecured revolving loan facility, due
March 31, 2003 6.00 % 187,000 93,000
Senior Subordinated Notes, due 2008 8.75 % 300,000 300,000
Convertible Subordinated Notes, due 2002 5.00 % 152,050 152,050
Other Various 19,274 20,952
-------- --------
682,563 591,463
Less current maturities (9,338) (8,036)
-------- --------
Long-term debt and capital leases $673,225 $583,427
======== ========
</TABLE>
5. RESTRUCTURING CHARGES
In November 1998, the Company committed to implement a
restructuring program affecting the Envelopes and Commercial Printing
segments and recorded a pre-tax provision of $15,961,000, of which
$11,699,000 represents non-cash charges for asset write-offs and
impairments, primarily machinery and equipment. Impairment losses were
calculated based on the excess of the carrying amount of the assets over
the assets' fair values. The fair value of an asset is generally
determined based on recent comparable sales and independent quotes from
the used equipment market. The remaining $4,262,000 is for severance,
other termination benefits and property exit costs, including
noncancelable operating leases. These charges are a result of the
regionalization of the Company's U.S. Envelopes operations and
reorganization of the Company's Commercial Printing operations,
primarily in the Northwest.
The Company also incurred $499,000 and $998,000 in expenses for
the three and six months ended June 30, 1999, respectively, relating to
the relocation of personnel, equipment and inventory which under
generally accepted accounting principles could not be accrued for as
part of the Company's restructuring initiative. These costs are
included in "Selling, administrative and other" in the consolidated
statements of operations. Severance costs for the 616 personnel
included in the restructuring provision resulted from regionalizing
special manufacturing operations (490 personnel) and administrative
functions (126 personnel) in various locations of the Company's U.S.
operations. Approximately 374 personnel had been terminated as of June
30, 1999 and the remaining terminations are expected to be completed by
December 31, 1999.
The following table summarizes the costs associated with the
restructuring program (in thousands):
<TABLE>
<CAPTION>
ASSET SEVERANCE & PROPERTY
WRITE-DOWNS RELATED COSTS EXIT COSTS TOTAL
----------- ------------- ---------- -----
<S> <C> <C> <C> <C>
Initial reserve $11,699 $2,907 $1,355 $15,961
Utilized in 1998 11,699 515 81 12,295
------- ------ ------ -------
Balance 12/31/98 - 2,392 1,274 3,666
Utilized in 1999 - 925 388 1,313
------- ------ ------ -------
Balance 6/30/99 $ - $1,467 $ 886 $ 2,353
======= ====== ====== =======
</TABLE>
11
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<PAGE>
6. COMMITMENT AND CONTINGENCIES
The Company participated in a $100.0 million accounts receivable
securitization agreement whereby it can sell, on a revolving basis, an
undivided percentage ownership interest in a designated pool of accounts
receivable up to a maximum of $100.0 sold under this agreement. In July
1999, the Company closed out this securitization agreement and entered
into a new accounts receivable securitization facility. See the
"Interest Expense" discussion in Item 2: Management's Discussion and
Analysis of Financial Condition and Results of Operation.
The Company is involved in various lawsuits incidental to its
businesses. In management's opinion, it is not probable that an adverse
determination against the Company relating to these suits would occur
that would be material to the consolidated financial statements. In the
case of administrative proceedings related to environmental matters
involving governmental authorities, management does not believe that any
imposition of monetary sanctions would be material to the Company's
results of operations and financial position.
7. SEGMENT INFORMATION
Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate
resources and in assessing performance. Generally, financial
information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to
allocate resources to segments. Additionally, segment information for
all periods has been restated to reflect the mergers of the Pooled
Companies as discussed in Note 2.
The Company's operating segments prepare separate financial
information that is evaluated regularly by the Chief Operating Officer
in assessing performance and deciding how to allocate resources.
Corporate expenses include the costs of maintaining a corporate office.
The Company does not allocate corporate overhead, interest (income)
expense, amortization expense, gains and losses on disposal of assets or
income taxes by segment in assessing performance.
Operating segments of the Company are defined primarily by product
line and consist of Commercial Printing, Envelopes, Printing for
Distributors and Labels. The latter two segments were added via
acquisitions in the first quarter of 1998. The Commercial Printing
segment specializes in printing advertising literature, high-end
catalogs, annual reports, calendars and other materials and provides a
broad range of printing and graphic arts services primarily to the
advertising industry. The Envelopes segment prints and manufactures
envelopes designed to customer specifications. The Printing for
Distributors segment prints a diverse line of custom products addressing
the business documents needs of small and medium-sized end users. The
Labels segment is a leading supplier of labels to the North American
food and beverage markets and has operations in the United Kingdom.
Early in 1999, the Company combined the High Impact Color Printing
segment with the Commercial Printing segment under one organization, now
called the Commercial Printing segment. In addition, Mail-Well Graphics
was reclassified from Envelopes to Commercial Printing since the 1998
Form 10-K. Segment information for all periods has been restated to
reflect these changes. Segment information as of and for the three and
six months ended June 30, 1999 and 1998 is presented below:
12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES:
Commercial Printing $ 165,860 $ 115,685 $349,659 $215,178
Envelopes 180,994 184,467 379,869 375,126
Printing for Distributors 39,066 28,602 71,942 53,159
Labels 53,126 21,305 77,993 25,330
---------- ---------- -------- --------
Total $ 439,046 $ 350,059 $879,463 $668,793
========== ========== ======== ========
OPERATING INCOME (LOSS):
Commercial Printing $ 13,321 $ 4,776 $ 27,234 $ 10,529
Envelopes 23,619 19,869 48,736 41,353
Printing for Distributors 3,792 2,508 6,549 4,209
Labels 3,941 1,661 5,622 1,924
Corporate (5,756) (3,947) (11,596) (9,602)
---------- ---------- -------- --------
Total $ 38,917 $ 24,867 $ 76,545 $ 48,413
========== ========== ======== ========
DEPRECIATION AND AMORTIZATION:
Commercial Printing $ 5,516 $ 4,134 $ 10,592 $ 8,014
Envelopes 3,954 3,568 7,750 7,017
Printing for Distributors 665 606 1,196 851
Labels 1,736 972 2,859 1,133
Corporate 2,219 877 3,895 1,399
---------- ---------- -------- --------
Total $ 14,090 $ 10,157 $ 26,292 $ 18,414
========== ========== ======== ========
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
IDENTIFIABLE ASSETS:
Commercial Printing $ 558,971 $ 495,918
Envelopes 512,674 500,355
Printing for Distributors 122,152 98,610
Labels 215,780 93,188
Corporate (108,162) (60,115)
---------- ----------
Total assets $1,301,415 $1,127,956
========== ==========
</TABLE>
13
<PAGE>
<PAGE>
8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In December 1998, Mail-Well I Corporation ("Issuer" or "MWI"), the
Company's wholly-owned subsidiary, and the only direct subsidiary of the
Company, issued $300.0 million aggregate principal amount of 8 3/4 %
Senior Subordinated Notes ("Senior Notes") due in 2008 (see Note 4). The
Senior Notes are guaranteed by all of the U.S. subsidiaries (the
"Guarantor Subsidiaries") of MWI, all of which are wholly owned, and by
Mail-Well, Inc. ("Parent Guarantor"). The guarantees are joint and
several, full, complete and unconditional. There are no material
restrictions on the ability of the Guarantor Subsidiaries to transfer
funds to MWI in the form of cash dividends, loans or advances, other
than ordinary legal restrictions under corporate law, fraudulent
transfer and bankruptcy laws.
The following condensed consolidating financial information
illustrates the composition of the Parent Guarantor, Issuer, Guarantor
Subsidiaries and non-guarantor subsidiaries. The Issuer, the Guarantor
subsidiaries and the non-guarantor subsidiaries comprise all of the
direct and indirect subsidiaries of the Parent Guarantor. Management
has determined that separate complete financial statements would not
provide additional material information that would be useful in
assessing the financial composition of the Guarantor Subsidiaries.
Investments in subsidiaries are accounted for under the equity
method, wherein the investor company's share of earnings and income
taxes applicable to the assumed distribution of such earnings are
included in net income. In addition, investments increase in the amount
of permanent contributions to subsidiaries and decrease in the amount of
distributions from subsidiaries. The elimination entries eliminate the
equity method investment in subsidiaries and the equity in earnings of
subsidiaries, intercompany payables and receivables and other
transactions between subsidiaries.
14
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Quarter Ended June 30, 1999
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated
--------- ------ ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ - $88,080 $271,338 $79,628 $ - $439,046
COST OF SALES - 66,867 208,784 56,053 - 331,704
------- ------- -------- ------- -------- --------
GROSS PROFIT - 21,213 62,554 23,575 - 107,342
OTHER OPERATING COSTS 43 16,176 37,932 14,274 - 68,425
------- ------- -------- ------- -------- --------
OPERATING INCOME (LOSS) (43) 5,037 24,622 9,301 - 38,917
OTHER (INCOME) EXPENSE
Interest expense 2,136 11,671 518 1,936 (2,212) 14,049
Other (income) expense (2,206) (30) (664) 160 2,212 (528)
------- ------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES 27 (6,604) 24,768 7,205 - 25,396
PROVISION (BENEFIT) FOR
INCOME TAXES - (2,706) 11,222 1,896 - 10,412
------- ------- -------- ------- -------- --------
INCOME (LOSS) BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 27 (3,898) 13,546 5,309 - 14,984
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 14,957 18,855 5,309 - (39,121) -
------- ------- -------- ------- -------- --------
NET INCOME $14,984 $14,957 $ 18,855 $ 5,309 $(39,121) $ 14,984
======= ======= ======== ======= ======== ========
</TABLE>
15
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Quarter Ended June 30, 1998
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated
--------- ------ ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ - $97,666 $214,154 $38,239 $ - $350,059
COST OF SALES - 79,105 173,026 27,501 - 279,632
------- ------- -------- ------- -------- --------
GROSS PROFIT - 18,561 41,128 10,738 - 70,427
OTHER OPERATING COSTS
Selling, administrative and
other 283 14,637 24,739 5,130 - 44,789
Merger costs - - 771 - - 771
------- ------- -------- ------- -------- --------
Total Other Operating
Costs 283 14,637 25,510 5,130 - 45,560
------- ------- -------- ------- -------- --------
OPERATING INCOME (LOSS) (283) 3,924 15,618 5,608 - 24,867
OTHER (INCOME) EXPENSE
Interest expense 1,896 4,550 2,297 1,232 (2,212) 7,763
Other (income) expense (2,217) 111 (488) (100) 2,212 (482)
------- ------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES 38 (737) 13,809 4,476 - 17,586
PROVISION FOR
INCOME TAXES - (263) 4,839 1,711 - 6,287
------- ------- -------- ------- -------- --------
INCOME (LOSS) BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 38 (474) 8,970 2,765 - 11,299
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 11,261 11,735 2,765 - (25,761) -
------- ------- -------- ------- -------- --------
NET INCOME $11,299 $11,261 $ 11,735 $ 2,765 $(25,761) $ 11,299
======= ======= ======== ======= ======== ========
</TABLE>
16
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six-months Ended June 30, 1999
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated
--------- ------ ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ - $189,275 $561,858 $128,330 $ - $879,463
COST OF SALES - 146,466 434,481 91,509 - 672,456
------- ------- -------- -------- -------- --------
GROSS PROFIT - 42,809 127,377 36,821 - 207,007
OTHER OPERATING COSTS 111 32,556 77,375 20,420 - 130,462
------- ------- -------- -------- -------- --------
OPERATING INCOME (LOSS) (111) 10,253 50,002 16,401 - 76,545
OTHER (INCOME) EXPENSE
Interest expense 4,271 22,277 1,004 3,688 (4,424) 26,816
Other (income) expense (4,423) (444) (539) 278 4,424 (704)
------- ------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES 41 (11,580) 49,537 12,435 - 50,433
PROVISION FOR
INCOME TAXES - (4,746) 21,462 3,961 - 20,677
------- ------- -------- -------- -------- --------
INCOME (LOSS) BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 41 (6,834) 28,075 8,474 - 29,756
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 29,715 36,549 8,474 - (74,738) -
------- ------- -------- -------- -------- --------
NET INCOME $29,756 $ 29,715 $ 36,549 $ 8,474 $(74,738) $ 29,756
======= ======== ======== ======== ======== ========
</TABLE>
17
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six-months Ended June 30, 1998
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated
--------- ------ ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ - $202,289 $397,797 $68,707 $ - $668,793
COST OF SALES - 162,151 317,762 49,406 - 529,319
------- -------- -------- ------- -------- --------
GROSS PROFIT - 40,138 80,035 19,301 - 139,474
OTHER OPERATING COSTS
Selling, administrative and
other 566 30,873 47,579 9,041 - 88,059
Merger costs - - 3,002 - - 3,002
------- -------- -------- ------- -------- --------
Total Other Operating
Costs 566 30,873 50,581 9,041 - 91,061
------- -------- -------- ------- -------- --------
OPERATING INCOME (LOSS) (566) 9,265 29,454 10,260 - 48,413
OTHER (INCOME) EXPENSE
Interest expense 4,023 9,073 4,433 2,048 (4,424) 15,153
Other (income) expense (4,430) (82) (945) (52) 4,424 (1,085)
------- -------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES (159) 274 25,966 8,264 - 34,345
PROVISION FOR
INCOME TAXES - 175 10,173 3,165 - 13,513
------- -------- -------- ------- -------- --------
INCOME (LOSS) BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES (159) 99 15,793 5,099 - 20,832
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 20,991 20,892 5,099 - (46,982) -
------- -------- -------- ------- -------- --------
NET INCOME $20,832 $ 20,991 $ 20,892 $ 5,099 $(46,982) $ 20,832
======= ======== ======== ======= ======== ========
</TABLE>
18
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
June 30, 1999
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated
--------- ------ ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ - $ 15,037 $(12,067) $ 7,627 $ - $ 10,597
Receivables, net - 19,120 89,671 46,179 - 154,970
Investment in accounts receivable
Securitization - 690 3,235 - - 3,925
Accounts receivable - other - 4,305 6,161 3,350 - 13,816
Income tax receivable - 15,917 - 225 (13,230) 2,912
Inventories, net - 37,061 75,520 26,104 - 138,685
Note receivable from Issuer 147,436 - - - (147,436) -
Other current assets 187 9,640 9,691 1,865 - 21,383
-------- ---------- -------- -------- ----------- ----------
Total current assets 147,623 101,770 172,211 85,350 (160,666) 346,288
INVESTMENT IN SUBSIDIARIES 339,312 810,548 183,459 - (1,333,319) -
PROPERTY, PLANT AND
EQUIPMENT, NET - 115,700 292,307 97,954 - 505,961
GOODWILL, NET - 51,369 256,362 113,360 - 421,091
OTHER ASSETS, NET 3,422 13,269 8,308 3,076 - 28,075
-------- ---------- -------- -------- ----------- ----------
TOTAL $490,357 $1,092,656 $912,647 $299,740 $(1,493,985) $1,301,415
======== ========== ======== ======== =========== ==========
CURRENT LIABILITIES
Accounts payable $ - $ 17,348 $ 70,177 $ 27,470 $ - $114,995
Accrued compensation and vacation - 13,127 28,277 7,238 - 48,642
Other current liabilities 1,024 63,276 (42,576) 38,178 (13,230) 46,672
Note payable to Parent - 147,436 - - (147,436) -
Current portion of long-term debt
and capital leases - 5 3,969 5,364 - 9,338
-------- ---------- -------- -------- ----------- ----------
Total current liabilities 1,024 241,192 59,847 78,250 (160,666) 219,647
LONG-TERM DEBT AND
CAPITAL LEASES 152,050 487,002 9,109 25,064 - 673,225
DEFERRED INCOME TAXES - 19,527 26,103 9,635 - 55,265
OTHER LONG-TERM
LIABILITIES - 2,123 7,040 3,332 - 12,495
-------- ---------- -------- -------- ----------- ----------
Total liabilities 153,074 749,844 102,099 116,281 (160,666) 960,632
MINORITY INTEREST - 3,500 - - - 3,500
SHAREHOLDERS' EQUITY 337,283 339,312 810,548 183,459 (1,333,319) 337,283
-------- ---------- -------- -------- ----------- ----------
TOTAL $490,357 $1,092,656 $912,647 $299,740 $(1,493,985) $1,301,415
======== ========== ======== ======== =========== ==========
</TABLE>
19
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
December 31, 1998
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated
--------- ------ ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ - $ 6,952 $ (7,311) $ 1,734 $ - $ 1,375
Receivables, net - 13,607 91,148 25,768 - 130,523
Investment in accounts receivable
securitization - 6,114 40,955 - - 47,069
Accounts receivable - other - 3,981 7,593 1,112 - 12,686
Income tax receivable - 43,908 - - (33,193) 10,715
Inventories, net - 39,267 60,286 14,578 - 114,131
Note receivable from Issuer 147,436 - - - (147,436) -
Other current assets 116 8,515 7,935 2,785 - 19,351
-------- -------- -------- -------- ----------- ----------
Total current assets 147,552 122,344 200,606 45,977 (180,629) 335,850
INVESTMENT IN SUBSIDIARIES 301,447 609,661 76,104 - (987,212) -
PROPERTY, PLANT AND
EQUIPMENT, NET - 121,733 249,002 66,997 - 437,732
GOODWILL, NET - 59,900 210,067 52,182 - 322,149
OTHER ASSETS, NET 3,902 13,111 15,155 57 - 32,225
-------- -------- -------- -------- ----------- ----------
TOTAL $452,901 $926,749 $750,934 $165,213 $(1,167,841) $1,127,956
======== ======== ======== ======== =========== ==========
CURRENT LIABILITIES
Accounts payable $ - $ 18,171 $ 56,441 $ 12,411 $ - $ 87,023
Accrued compensation and vacation - 12,320 23,926 5,155 - 41,401
Other current liabilities 1,476 26,759 16,953 35,197 (33,193) 47,192
Note payable to Parent - 147,436 - - (147,436) -
Current portion of long-term debt
and capital leases - 5 2,796 5,235 - 8,036
-------- -------- -------- -------- ----------- ----------
Total current liabilities 1,476 204,691 100,116 57,998 (180,629) 183,652
LONG-TERM DEBT AND
CAPITAL LEASES 152,050 393,004 15,415 22,958 - 583,427
DEFERRED INCOME TAXES - 19,890 20,078 7,566 - 47,534
OTHER LONG-TERM
LIABILITIES - 4,217 5,664 587 - 10,468
-------- -------- -------- -------- ----------- ----------
Total liabilities 153,526 621,802 141,273 89,109 (180,629) 825,081
MINORITY INTEREST - 3,500 - - - 3,500
SHAREHOLDERS' EQUITY 299,375 301,447 609,661 76,104 (987,212) 299,375
-------- -------- -------- -------- ----------- ----------
TOTAL $452,901 $926,749 $750,934 $165,213 $(1,167,841) $1,127,956
======== ======== ======== ======== =========== ==========
</TABLE>
20
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six-months ended June 30, 1999
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated
--------- ------ ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES $ 4,251 $ 72,358 $ (8,941) $ 6,982 $ - $ 74,650
CASH FLOWS FROM
INVESTING ACTIVITIES
Acquisition costs, net of cash
acquired - - (73,548) (89,021) - (162,569)
Capital expenditures - (4,971) (30,290) (4,432) - (39,693)
Investment in subsidiaries - (158,313) (91,649) - 249,962 -
Other investing activities (4,954) 1 4,898 936 703 1,584
------- --------- --------- -------- --------- ---------
Net cash used in investing
activities (4,954) (163,283) (190,589) (92,517) 250,665 (200,678)
CASH FLOWS FROM FINANCING ACTIVITIES
Changes due to accounts
receivable securitization,
net - 5,434 37,788 - - 43,222
Net proceeds from common stock
issuance 703 - - - - 703
Proceeds from long-term debt - 232,000 - 9,805 - 241,805
Repayments of long-term debt and
capital lease obligations - (138,010) (1,472) (10,022) - (149,504)
Investment by parent - 703 158,313 91,649 (250,665) -
Other financing activities - (1,117) 145 - - (972)
------- --------- --------- -------- --------- ---------
Net cash provided by
financing activities 703 99,010 194,774 91,432 (250,665) 135,254
EFFECT OF EXCHANGE RATE CHANGES
ON CASH - - - (4) - (4)
------- --------- --------- -------- --------- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS - 8,085 (4,756) 5,893 - 9,222
BALANCE AT BEGINNING OF YEAR - 6,952 (7,311) 1,734 - 1,375
------- --------- --------- -------- --------- ---------
BALANCE AT END OF YEAR $ - $ 15,037 $ (12,067) $ 7,627 $ - $ 10,597
======= ========= ========= ======== ========= =========
</TABLE>
21
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Six-months ended June 30, 1998
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Elim. Consolidated
--------- ------ ------------ ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES $ 1,094 $ (32,207) $ 8,759 $ 47,300 $ - $ 24,946
CASH FLOWS FROM
INVESTING ACTIVITIES
Acquisition costs, net of
cash acquired (90) (9,612) (211,004) (33,917) - (254,623)
Capital expenditures - (9,549) (18,604) (3,102) - (31,255)
Investment in subsidiaries (92,268) (282,421) (30,000) - 404,689 -
Other investing activities (1,259) - 1,565 384 - 690
-------- --------- --------- --------- --------- ---------
Net cash used in investing
activities (93,617) (301,582) (258,043) (36,635) 404,689 (285,188)
CASH FLOWS FROM FINANCING ACTIVITIES
Changes due to accounts
receivable securitization,
net - 1,041 5,904 - - 6,945
Net proceeds from common stock
issuance 92,268 - - - - 92,268
Proceeds from long-term debt - 210,000 213 126,917 - 337,130
Repayments of long-term debt
and capital lease
obligations - (43) (35,109) (150,940) - (186,092)
Investment by parent - 92,268 282,421 30,000 (404,689) -
Other financing activities - - (3,658) - - (3,658)
-------- --------- --------- --------- --------- ---------
Net cash provided by
financing activities 92,268 303,266 249,771 5,977 (404,689) 246,593
EFFECT OF EXCHANGE RATE CHANGES
ON CASH - - - (2,301) - (2,301)
-------- --------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (255) (30,523) 487 14,341 - (15,950)
BALANCE AT BEGINNING OF YEAR 256 41,483 (920) 92 - 40,911
-------- --------- --------- --------- --------- ---------
BALANCE AT END OF YEAR $ 1 $ 10,960 $ (433) $ 14,433 $ - $ 24,961
======== ========= ========= ========= ========= =========
</TABLE>
22
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The following should be read in conjunction with the consolidated
historical financial statements and related notes of Mail-Well, Inc. and
its subsidiaries (the "Company") included elsewhere in this report. In
addition to the historical information contained herein, this report
contains forward-looking statements. The reader of this information
should understand that all such forward-looking statements are subject
to various uncertainties and risks that could affect their outcome. The
Company's actual results could differ materially from those suggested by
such forward-looking statements. Factors which could cause or
contribute to such differences include, but are not limited to the
following:
* availability of acquisition opportunities and their related
costs
* ability to obtain productivity savings
* ability to achieve cost savings from integration of
acquisitions
* ability to obtain additional financing
* interest and foreign currency exchange rates
* paper and other raw material costs and the ability to pass
paper costs on to customers
* postage rates and other changes in the direct mail industry
* general labor conditions
This entire report should be read to put such forward-looking statements
in context and to gain a more complete understanding of the
uncertainties and risks involved in the Company's business.
OVERVIEW, HISTORICAL FINANCIAL DATA BY SEGMENT (IN THOUSANDS)
The following table presents historical financial data by
segment, including acquisitions from their purchase dates. The
Commercial Printing results include those of the merged businesses
described in Note 2 to the Consolidated Financial Statements (accounted
for under the pooling of interests method), except that the results of
IPC Graphics have been included with the Printing for Distributors
segment beginning January 1, 1997. The results for 1998 have been
restated to reflect the combination of the High Impact Color Printing
segment with the Commercial Printing segment. In addition, amounts were
reclassified from Envelopes to Commercial Printing for transfers of a
business unit.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales
Commercial Printing $165,860 $115,685 $349,659 $215,178
Envelopes 180,994 184,467 379,869 375,126
Printing for Distributors 39,066 28,602 71,942 53,159
Labels 53,126 21,305 77,993 25,330
-------- -------- -------- --------
Total net sales $439,046 $350,059 $879,463 $668,793
======== ======== ======== ========
Operating income
Commercial Printing $ 13,321 $4,776 $ 27,234 $ 10,529
Envelopes 23,619 19,869 48,736 41,353
Printing for Distributors 3,792 2,508 6,549 4,209
Labels 3,941 1,661 5,622 1,924
Corporate (5,756) (3,176) (11,596) (6,600)
Merger costs - (771) - (3,002)
-------- -------- -------- --------
Total operating income 38,917 24,867 76,545 48,413
Interest expense (14,049) (7,763) (26,816) (15,153)
Other income (expense) 528 482 704 1,085
Income tax expense (10,412) (6,287) (20,677) (13,513)
-------- -------- -------- --------
Net income $ 14,984 $ 11,299 $ 29,756 $ 20,832
======== ======== ======== ========
</TABLE>
23
<PAGE>
<PAGE>
Net sales for the quarter ended June 30, 1999 increased 25.4% to
$439.0 million compared to net sales of $350.1 million for the quarter
ended June 30, 1998. This increase in net sales was attributable to
sales from companies acquired during 1999, a full quarter of sales from
companies acquired during 1998 and internal growth in each segment.
Gross profit of $107.4 million for the quarter ended June 30, 1999
represents a 52.4% increase over the quarter ended June 30, 1998.
Expressed as a percent of net sales, gross profit increased by 430 basis
points (BP) to 24.4% for the quarter ended June 30, 1999 compared to
20.1% for the quarter ended June 30, 1998 primarily due to the Company's
productivity improvements, the impact of purchasing programs and
benefits from restructuring initiatives. Expressed as a percent of net
sales, selling, administrative and other expense increased 260 BP to
15.6% for the quarter ended June 30, 1999 from 13.0% in quarter ended
June 30, 1998. The increase was mainly due to increased amortization
expense, the impact of acquisitions and an increase in corporate
administrative expense attributable to expanded treasury and finance
operations. Operating income increased 56.5% from the quarter ended June
30, 1998.
Earnings for the quarter ended June 30, 1999 increased 32.6% to
$15.0 million from $11.3 million in the second quarter of the prior
year. Earnings per diluted share increased 27.3% to $0.28 in the quarter
ended June 30, 1999 from $0.22 in 1998.
Net sales for the six-months ended June 30, 1999 increased 31.5%
to $879.5 million compared to net sales of $668.8 million for the six-
months ended June 30, 1998. This increase in net sales was attributable
to sales from companies acquired during 1999, a full six-months of sales
from companies acquired during 1998 and internal growth in each segment.
Gross profit of $207.0 million for the six-months ended June 30, 1999
represents a 48.4% increase over the six-months ended June 30, 1998.
Expressed as a percent of net sales, gross profit increased by 260 BP to
23.5% for the six-months ended June 30, 1999 compared to 20.9% for the
six-months ended June 30, 1998 primarily due to the Company's
productivity improvements, the impact of purchasing programs and
benefits from restructuring initiatives. Expressed as a percent of net
sales, selling, administrative and other expense increased 120 BP to
14.8% for the six-months ended June 30, 1999 from 13.6% in six-months
ended June 30, 1998. The increase was mainly due to increased
amortization expense, the impact of acquisitions and an increase in
corporate administrative expense attributable to expanded treasury and
finance operations. Operating income increased 58.1% from the six-months
ended June 30, 1998.
Earnings for the six-months ended June 30, 1999 increased 42.8% to
$29.8 million from $20.8 million in the six-month period of the prior
year. Earnings per diluted share increased 33.3% to $0.56 in the six-
months ended June 30, 1999 from $0.42 in 1998.
RESTRUCTURING CHARGES -- In November 1998 the Company committed to
implement a restructuring program affecting the Envelopes and Commercial
Printing segments and recorded a pre-tax provision of $16.0 million, of
which $11.7 million represents non-cash charges for asset write-offs and
impairments. The Company also incurred $0.5 million of costs in each of
the quarters ended March 31, 1999 and June 30, 1999 relating to the
relocation of equipment which under generally accepted accounting
principles could not be previously accrued for as part of the Company's
restructuring initiative. These costs are included in "Selling,
administrative and other" in the consolidated statements of operations.
For more information on these charges please refer to Note 5 of the
Notes to Consolidated Financial Statements included in the Annual Report
on Form 10-K for the year ended December 31, 1998 and Note 5 of the
Financial Statements included in this Form 10-Q.
24
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RESULTS OF OPERATIONS FOR SIGNIFICANT BUSINESS SEGMENTS
Commercial Printing
QUARTER ENDED JUNE 30, 1999 COMPARED TO THE QUARTER ENDED JUNE 30, 1998
NET SALES -- Net sales increased by $50.2 million (43.4%) for the
quarter ended June 30, 1999 compared to the quarter ended June 30, 1998,
primarily due to acquisitions in 1998 and 1999. Without acquisitions and
the loss of sales from businesses we planned to exit, volume gains
(offset by declining paper prices) were up 4%.
OPERATING INCOME -- The majority of the increase in operating
income from $4.8 million to $13.3 million in the quarter ended June 30,
1999 was due to improvements in gross margins. Cost of sales includes
materials (net of waste recovery revenue), labor, depreciation and other
manufacturing and distribution costs. Total cost of sales, as a percent
of sales, decreased from 81.6% for the quarter ended June 30, 1998 to
77.5% for the quarter ended June 30, 1999. This decline was primarily
due to the impact of the benefits from new acquisitions adopting our
corporate purchasing programs and continuous improvement initiatives.
SIX-MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX-MONTHS ENDED JUNE 30,
1998
NET SALES -- Net sales increased by $134.5 million (62.5%) for the
six-months ended June 30, 1999 compared to the six-months ended June 30,
1998, primarily due to acquisitions in 1998 and 1999. Without
acquisitions net sales were essentially unchanged as volume gains were
offset by declining paper prices.
OPERATING INCOME -- The majority of the increase in operating
income from $10.5 million to $27.2 million in the six-months ended June
30, 1999 was due to improvements in gross margins. Cost of sales
includes materials (net of waste recovery revenue), labor, depreciation
and other manufacturing and distribution costs. Total cost of sales, as
a percent of sales, decreased from 80.6% for the six-months ended June
30, 1998 to 77.9% for the six-months ended June 30, 1999. This decline
was primarily due to the impact of the benefits from new acquisitions
adopting our corporate purchasing programs and continuous improvement
initiatives.
Envelopes
QUARTER ENDED JUNE 30, 1999 COMPARED TO THE QUARTER ENDED JUNE 30, 1998
NET SALES -- Net sales decreased by $3.5 million (1.9%) for the
quarter ended June 30, 1999 compared to the quarter ended June 30, 1998.
Paper cost changes have historically been passed through to the
customer. Adjusting for a decrease in paper prices (approximately 14%
change in paper material costs) revenues increased 5%. Half of the
increase was attributable to real revenue growth and the other half was
attributable to acquisitions. As the Company has grown and implemented
its restructuring initiatives, by expanding into multiple markets and
changing markets, mix is significantly impacted by the various products
and geographical locations served. Therefore, it is difficult to
quantify the change in sales due to volume/price/mix.
OPERATING INCOME -- The majority of the increase in operating
income from $19.9 million to $23.6 million in the quarter ended June 30,
1999 was due to improvements in gross margins. Cost of sales includes
materials (net of waste recovery revenue), labor, depreciation and other
manufacturing and distributions costs. Total cost of sales, as a
percent of sales, decreased from 78.3% for the quarter ended June 30,
1998 to 73.8% for the quarter ended June 30, 1999. The decrease was due
to the positive benefits of the Company's restructuring plan and the
impact of purchasing and productivity programs.
25
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SIX-MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX-MONTHS ENDED JUNE 30,
1998
NET SALES -- Net sales increased by $4.8 million (1.3%) for the
six-months ended June 30, 1999 compared to the six-months ended June 30,
1998. Adjusting for acquisitions and a decrease in paper prices, which
are passed on to customers, (approximately 17% change in paper material
costs) revenues were up 3.8%.
OPERATING INCOME -- The majority of the increase in operating
income from $41.4 to $48.7 in the six months ended June 30, 1999 was due
to improvements in gross margins. Cost of sales includes materials (net
of waste recovery revenue), labor, depreciation and other manufacturing
and distributions costs. Total cost of sales, as a percent of sales,
decreased from 77.7% for the six-months ended June 30, 1998 to 74.5% for
the six-months ended June 30, 1999. The decrease was due to the
positive benefits of the Company's restructuring plan and the impact of
purchasing and productivity programs.
Corporate
Certain major production equipment is accounted for as an
operating lease on a consolidated basis while treated as a purchase on a
segment level. The Company classifies the excess of the operating lease
expense over depreciation as a corporate expense in analyzing segment
operations. The Company does not include the amortization of intangibles
recorded in acquisitions in segment results but rather includes it on a
corporate basis. In addition, corporate expenses include corporate
administrative expense and loss (gain) on disposal of assets.
Corporate expenses for the quarter and six-months ended June 30,
1999 increased $2.6 million and $5.0 million, respectively, compared to
1998 as a result of increases in amortization expense and corporate
administrative expense. Amortization expense increased as a result of
the acquisitions made in the year ended December 31, 1998 and the six-
months ended June 30, 1999. The increase in corporate administrative
expense was attributable to expanded treasury and finance operations.
MERGER COSTS -- Effective May 30, 1998, the Company completed its
mergers with six commercial printing companies and one printing for
distributor company through the exchange of common stock. In connection
with the mergers, transaction costs incurred of $3.0 and $0.8 million
were expensed in the six-months and quarter ended June 30, 1998,
respectively. These costs consist primarily of investment banking, legal
and accounting fees. For more information on these mergers please refer
to Note 2 of the Notes to Consolidated Financial Statements.
INTEREST EXPENSE -- Interest expense for the quarter ended June 30,
1999 increased $6.2 million compared to the quarter ended June 30, 1998.
Interest expense for the six-months ended June 30, 1999 increased $11.6
million compared to the six-months ended June 30, 1998. Both increases
occurred as a result of higher average bank debt balances, primarily due
to acquisitions, and a slight increase in the overall average borrowing
rate. The Company continued to participate in its accounts receivable
securitization agreement whereby it can sell, on a revolving basis, an
undivided percentage ownership interest in a designated pool of accounts
receivable up to a maximum of $100.0 million until November 2001. At
June 30, 1999 and 1998, $96.0 million and $84.5 million, respectively,
had been sold under this agreement. In July 1999, the Company closed
out this securitization agreement and entered into a new accounts
receivable securitization facility. The Company entered into a five-
year agreement whereby it can sell, on a revolving basis, an undivided
percentage ownership interest in a designated pool of accounts
receivable up to a maximum of $150.0 million. The receivables were sold
at a discount slightly above the prevailing commercial paper rate, plus
certain other fees.
INCOME TAX EXPENSE -- The effective tax rate for all periods was
higher than the federal statutory rate due to state and provincial
income taxes and certain goodwill amortization that is not tax
deductible. See Notes 2 and 9 of the Notes to Consolidated Financial
Statements included in the Company's 1998 Form 10-K.
26
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LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL CASH FLOW -- Net cash flow provided by operating
activities was $74.7 million and $24.9 million for the six-months ended
June 30, 1999 and 1998, respectively. Acquisitions required cash
payments of $162.6 million and $254.6 million for the six-months ended
June 30, 1999 and 1998, respectively. Other investing activities include
capital expenditures, which were $38.1 million and $30.6 million for the
six-months ended June 30, 1999 and 1998, respectively. Net cash flow
from financing activities was positively affected by the increase in
receivables sold under the securitization agreement through June 30,
1999 and 1998 of $43.2 million and $6.9 million, respectively.
At June 30, 1999, the Company had approximately $113.0 million of
available credit under the $300.0 million Bank of America credit
facility. In addition, at June 30, 1999, the Company had sold $96
million of receivables under the $100.0 million securitization facility.
SECURITIES OFFERINGS -- The Company has an effective shelf
registration statement on Form S-3 that permits the Company to issue
debt securities, common stock, preferred stock or warrants. At June 30,
1999, there was availability remaining to issue approximately $52.0
million of securities under the shelf registration statement.
In December 1998 the Company's wholly-owned operating subsidiary,
Mail-Well I Corporation, issued $300.0 million in aggregate principal
amount of 8 3/4% Senior Subordinated Notes due 2008 (the "Senior Notes").
The Senior Notes were sold to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933. In June 1999 Mail-Well I
completed an exchange offer whereby it exchanged $300 million in
aggregate principal amount of 8 3/4% Series B Senior Subordinated Notes
due 2008 for all of the outstanding Senior Notes in a transaction
registered under the Securities Act.
FOREIGN CURRENCY -- With the strengthening U.S. Dollar, the
Company's foreign currency exposure primarily relates to its Canadian
operations. Net sales provided by the Canadian operations for the six-
months ended June 30, 1999 and 1998 was USD $95.4 million and USD $68.8
million, respectively. The impact of the change in Canadian Dollar
exchange rates was minimal.
SEASONALITY AND ENVIRONMENT -- As the Company expands its
operations into more commercial printing and labels segments, it has
become more impacted by seasonality. Management expects the first and
third quarter to report higher sales for the Commercial Printing segment
because of annual report and car brochure business. In addition, the
third quarter is traditionally the strongest for the Labels segment.
The effects of environmental matters had no material financial
impact on the historical operations of the Company and are not expected
to have a material effect on the Company's liquidity and capital
resources.
RECENT DEVELOPMENTS
On August 4, 1999, the Company purchased Enterprise Press, a
commercial printer in New York, NY, with annual sales of approximately
$23.0 million. On August 6, 1999, the Company purchased Direct
Graphics, Inc., which specializes in direct mail printing and services.
The Sidney, Ohio-based company reported 1998 sales of $21.0 million.
On July 2, 1999, the Company announced that Gary H. Ritondaro has
been named Senior Vice President and CFO of Mail-Well, Inc., succeeding
Michael A. Zawalski whom became President and CEO of Mail-Well Label.
On July 7, 1999, we announced that David H. Holt was appointed President
and CEO of the Printing for Distributors segment.
27
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YEAR 2000
In 1997 the Company began to assess its existing computer systems,
including an assessment of Year 2000 compliance. In May 1998 the
Company instituted a Year 2000 Project whose goal was to develop and
execute a plan for Year 2000 compliance throughout the Company. The
Company has established an individual at every significant operating
entity to be responsible for coordination with the Year 2000 Project.
What is the Company's state of readiness? What are the costs?
The Company's Year 2000 Project is directed to four major areas:
core computer systems, networking and communications, ancillary systems
(including plant machinery) and verification with key suppliers. The
following summarizes our state of readiness and the costs to address the
Company's Year 2000 issues.
CORE COMPUTER SYSTEMS
The Company completed an assessment of its existing computer
systems in 1997 and expected to spend and capitalize approximately $9 to
$11 million through 1999 to purchase and install new systems. The new
systems are Y2K compliant. These costs are being funded through
operating cash flows. Several computer systems were due to be replaced
but were accelerated because of the Year 2000 issue. Through June 30,
1999, approximately $9.4 million of the estimated $10 to $12 million has
been capitalized. The amount expected to be capitalized has been
increased due to acquisitions and other projects, which were
subsequently added.
Through June 1999, 72% of the core systems are compliant. System
replacements are in the implementation phase at all remaining divisions;
i.e., hardware and network equipment is operational, software is in
place, and project teams are working on training and transition. The
Company has met all of its core computer systems replacement goals to
date and expects to complete the remainder by the end of the third
quarter.
NETWORKING AND COMMUNICATIONS
The Company is also taking actions required to minimize the risk
that its remaining business critical networking and communications
systems will be disrupted with respect to dating in the year 2000. The
Company has completed or is engaged in the process of updating,
replacing and testing certain of its network operating systems and
network equipment and firmware so as to operate without disruption due
to year 2000 issues. These actions are scheduled to be completed
through the third quarter of 1999 and, based on current information
available, the Company does not anticipate the costs of remedial
actions, which are being expensed as incurred, will be material.
ANCILLARY SYSTEMS AND VERIFICATION WITH KEY SUPPLIERS
The Company has completed an inventory of year 2000 sensitive
devices, plant machinery and desktop software. The Company has also
completed a listing of business critical suppliers, such as paper and
ink suppliers. All such suppliers have been identified and contacted for
information on their actions to mitigate Year 2000 disruptions. Results
of the supplier surveys, of both device and manufacturing suppliers, and
follow-up mailings are reflected in contingency planning at each
division. Based on the information received through June 30, 1999,
management does not believe costs to replace year 2000 sensitive
devices, plant machinery and desktop software will exceed $1.5 million,
which management does not consider to be material to our financial
condition or cash flow.
What is the Company doing about contingency planning?
Every location of the Company is required to prepare a contingency
plan and to file it with the Mail-Well Y2K Office. The contingency
guidelines to be followed will address the following issues, among
others:
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* Response to and recovery from Y2K related failures
* Raw materials inventory stocking levels and alternative sources
* Review of disaster recovery plans
* Comprehensive system backup procedures to preserve 1999 data at
year-end
* Availability of key staff on-site during the New Year's weekend
* Coordination of planning with other Mail-Well plants
What are the risks of the Company's Year 2000 issues?
The Company presently believes it has an effective plan in place
to anticipate and resolve any potential Year 2000 issues in a timely
manner. In the event, however, the Company does not properly identify
Year 2000 issues or the resolution is not timely conducted for those
Year 2000 issued identified, there can be no assurance that Year 2000
issues will not materially and adversely affect the Company's results of
operations or relationships with third parties. In addition,
disruptions in the economy generally resulting from Year 2000 issues
also could materially and adversely affect the Company. The amount of
potential liability and lost revenue that would be reasonably likely to
result from the failure by the Company and certain key third parties to
achieve Year 2000 compliance on a timely basis cannot be reasonably
estimated at this time. The Company expects to complete a contingency
plan to deal with the most reasonably likely worst case scenario during
the third quarter of 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (the "Statement"). The
Statement, which will be effective for the year 2001, requires
derivative instruments to be recorded in the balance sheet at their fair
value with changes in fair value being recognized in earnings unless
specific hedging accounting criteria are met. Although the Company
believes it has a minimal current level of hedging and derivative
activity, it has not determined the impact of this statement on its
operations and financial position.
In March 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position (SOP) 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use". The SOP,
which has been adopted prospectively as of January 1, 1999, requires the
capitalization of certain costs incurred in connection with developing
or obtaining internal use software. Prior to the adoption of the SOP,
the Company expensed all internal use software related internal costs as
incurred. The effect of adopting the SOP was immaterial to the quarter
and six-months ended June 30, 1999 and is not expected to have a
material impact on earnings going forward.
ITEM 3.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks, including foreign
currency and interest rate risks. The foreign currency risk for foreign
currency denominated debt obligations (US$ 24,239,000 at June 30, 1999)
and the interest rate risk for the investment in accounts receivable
securitization ($3,925,000 at June 30, 1999) are not considered to be
significant since the fair values and carrying values are not material
to the Company's financial position. The Company's cash flows from
operations and earnings are affected by changes in short-term interest
rates since a large portion of its credit agreements include rates
variable with LIBOR. As of June 30, 1999, $187 million of variable rate
debt was outstanding. The fair value of the Company's fixed rate long-
term debt is affected by changes in long-term interest rates. See Item
7A of the Company's 1998 Form 10-K for quantitative and qualitative
disclosures about market risk. No significant changes in market risk
have occurred since that filing.
29
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PART II--OTHER INFORMATION
ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On May 5, 1999, the Company held its Annual Meeting of
Stockholders, at which the following matters were voted upon:
ELECTION OF DIRECTORS--The following individuals were re-elected
to the Board of Directors by the following vote:
For Withhold
--- --------
Frank P. Diassi 29,617,495 68,671
Frank J. Hevrdejs 29,617,965 68,201
Gerald F. Mahoney 29,586,918 99,248
Jerome W. Pickholz 29,626,416 59,750
Paul V. Reilly 29,599,514 86,652
William R. Thomas 29,626,795 59,371
The following individual was elected to the Board of Directors by
the following vote:
For Withhold
--- --------
Janice C. Peters 29,624,848 61,318
SELECTION OF AUDITORS--The selection of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending 1999 was
ratified by the following vote: 29,524,909 For, 123,800 Against, 37,457
Abstentions.
ITEM 6.--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3(i) Articles of Incorporation of the Company - incorporated by
reference from Exhibit 3(i) of the Company's Form 10-Q for
the quarter ended June 30, 1997.
3(ii) Bylaws of the Company - incorporated by reference from Exhibit
3.4 of the Company's Registration Statement on Form S-1
dated September 21, 1995.
4.1 Form of Certificate representing the Common Stock, par value
$0.01 per share, of the Company - incorporated by reference
from Exhibit 4.1 of the Company's Amendment No. 1 to Form
S-3 dated October 29, 1997 (Reg. No. 333-35561).
4.2 Form of Indenture between the Company and The Bank of New York,
as Trustee, dated November 1997, relating to the Company's
$152,050,000 aggregate principal amount of 5% Convertible
Subordinated Notes due 2002--incorporated by reference from
Exhibit 4.2 to the Company's Amendment No. 2 to Form S-3
dated November 10, 1997 (Reg. No. 333-36337).
4.3 Form of Supplemental Indenture between the Company and The Bank
of New York, as Trustee, dated November 1997, relating to
the Company's $152,050,000 aggregate principal amount of 5%
Convertible Subordinated Notes due 2002 and Form of
Convertible Note--incorporated by reference from Exhibit 4.5
to the Company's Amendment No. 2 to Form S-3 dated November
10, 1997 (Reg. No. 333-36337).
4.4 Indenture dated as of December 16, 1998 between Mail-Well I
Corporation ("MWI") and State Street Bank and Trust Company,
as Trustee, relating to MWI's $300,000,000 aggregate
principal amount of 8 3/4% Senior Subordinated Notes due 2008 -
incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
4.5 Form of Senior Subordinated Note. Incorporated by reference
from the company's Annual Report of Form 10-K for the year
ended December 31, 1998.
10.1 Form of Indemnity Agreement between the Company and each of its
officers and directors - incorporated by reference from
Exhibit 10.17 of the Company's Registration Statement on
Form S-1 dated March 25, 1994.
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10.2 Form of Indemnity Agreement between Mail-Well I Corporation and
each of its officers and directors - incorporated by
reference from Exhibit 10.18 of the Company's Registration
Statement on Form S-1 dated March 25, 1994.
10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as of
February 23, 1994 and related Employee Stock Ownership Plan
Trust Agreement - incorporated by reference from Exhibit
10.19 of the Company's Registration Statement on Form S-1
dated March 25, 1994.
10.4 Form of M-W Corp. 401(k) Savings Retirement Plan - incorporated
by reference from Exhibit 10.20 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
10.5 Mail-Well, Inc. 1994 Stock Option Plan, as amended on May 7,
1997 - incorporated by reference from Exhibit 10.56 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997.
10.6 Form of 1994 Incentive Stock Option Agreement - incorporated
by reference from Exhibit 10.22 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
10.7 Form of the Company Nonqualified Stock Option Agreement -
incorporated by reference from Exhibit 10.23 of the
Company's Registration Statement on Form S-1 dated March 25,
1994.
10.8 Purchase and Contribution Agreement dated as of November 15,
1996 between Mail-Well I Corporation, Wisco Envelope Corp.,
Pavey Envelope and Tag Corp., Mail-Well West, Inc., Graphic
Arts Center, Inc., Wisco III, L.L.C., Supremex, Inc.,
Innova Envelope, Inc., as Sellers, and Mail-Well Trade
Receivables Corp., as Purchaser-incorporated by reference
from Exhibit 10.39 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
10.9 Mail-Well Receivables Master Trust Pooling and Servicing
Agreement dated as of November 15, 1996 by and between Mail-
Well Trade Receivables Corporation, Seller, Mail-Well I
Corporation, Servicer, and Norwest Bank Colorado, National
Association, Trustee-incorporated by reference from Exhibit
10.40 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
10.10 Series 1996-1 Supplement dated as of November 15, 1996 to
Pooling and Servicing Agreement, dated as of November 15,
1996, by and between Mail-Well Trade Receivables
Corporation, Seller, Mail-Well I Corporation, Servicer, and
Norwest Bank Colorado, National Association, as Trustee on
behalf of the Series 1996-1 Certificateholders-incorporated
by reference from Exhibit 10.41 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
10.11 Series 1996-1 Certificate Purchase Agreement dated as of
November 15, 1996 among Mail-Well Trade Receivables
Corporation, as Seller, Corporate Receivables Corporation,
as Purchaser, Norwest Bank Colorado, National Association,
as Trustee, and Mail-Well I Corporation, as Servicer-
incorporated by reference from Exhibit 10.42 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
10.12 Mail-Well, Inc. 1997 Non-Qualified Stock Option Plan --
incorporated by reference from exhibit 10.54 of the
Company's Form 10-Q for the quarter ended March 31, 1997
10.13 1997 Non-Qualified Stock Option Agreement -- incorporated by
reference from exhibit 10.54 of the Company's Form 10-Q for
the quarter ended March 31, 1997.
10.14 Mail-Well, Inc. 1998 Incentive Stock Option Plan -- incorporated
by reference from Exhibit 10.58 to the Company's Quarterly
report on Form 10-Q for the quarter ended March 31, 1998.
10.15 Form of 1998 Incentive Stock Option Agreement -- incorporated by
reference from Exhibit 10.59 to the Company's Quarterly
report on Form 10-Q for the quarter ended March 31, 1998.
10.16 Credit Agreement dated as of March 16, 1998 among Mail-Well I
Corporation, certain Guarantors, Bank of America National
Trust and Savings Association, as Agent and other financial
institutions party thereto Agreement -- incorporated by
reference from Exhibit 10.60 to the Company's Quarterly
report on Form 10-Q for the quarter ended March 31, 1998.
10.17 Credit Agreement dated as of March 16, 1998 among Supremex
Inc., certain Guarantors, Bank of America National Trust and
Savings Association, as Agent and other financial
institutions party thereto -- incorporated by reference from
Exhibit 10.61 to the Company's Quarterly report on Form 10-Q
for the quarter ended March 31, 1998.
10.18 Participation Agreement dated as of December 15, 1997 among
Mail-Well I Corporation, Keybank National Association, as
Trustee and other financial institutions party
thereto -- incorporated by reference from Exhibit 10.62 to the
Company's Quarterly report on Form 10-Q for the quarter
ended March 31, 1998.
10.19 Equipment Lease dated as of December 15, 1997 among Mail-Well I
Corporation, Keybank National Association, as Trustee and
other financial institutions party thereto -- incorporated by
reference from Exhibit 10.63 to the Company's Quarterly
report on Form 10-Q for the quarter ended March 31, 1998.
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10.20 Guaranty Agreement dated as of December 15, 1997 among Mail-
Well, Inc., Graphic Arts Center, Inc., Griffin Envelope Inc.,
Murray Envelope Corporation, Shepard Poorman Communications
Corporation, Wisco Envelope Corp., Wisco II, LLC, Wisco III,
LLC, Mail-Well I Corporation, Keybank National Association,
as Trustee and other financial institutions party
thereto -- incorporated by reference from Exhibit 10.64 to the
Company's Quarterly report on Form 10-Q for the quarter
ended March 31, 1998.
10.21 Purchase Agreement dated as of December 15, 1997 among Mail-
Well I Corporation and Poser Business Forms, Inc. and other
Selling Shareholders party thereto -- incorporated by
reference from the Company's report on Form 8-K dated
January 6, 1998.
10.22 Asset Purchase Agreement dated as of January 31, 1998 among
Lawson Mardon Packaging USA, Inc (USA) -- incorporated by
reference from the Company's report on Form 8-K dated March
10, 1998.
10.23 Asset Purchase Agreement dated as of January 31, 1998 among
3014597 Nova Scotia Company and Lawson Mardon Packaging Inc.
(Canada) -- incorporated by reference from the Company's
report on Form 8-K dated March 10, 1998.
10.24 Purchase Agreement dated December 11, 1998, between MWI and
Donaldson, Lufkin & Jenrette Securities Corporation,
Prudential Securities, Incorporated, Bear, Stearns & Co.,
Inc. and Hanifen, Imhoff Inc., as Initial Purchasers,
relating to MWI's $300,000,000 aggregate principal amount of
8 3/4% Senior subordinated Notes due 2008 -- incorporated by
reference from Exhibit 10.27 of the Company's Annual Report
on form 10-K for the year ended December 31, 1998.
10.25 Registration Rights Agreement dated December 16, 1998 by and
among MWI and Donaldson, Lufkin & Jenrette Securities
Corporation, Prudential Securities, Incorporated, Bear,
Stearns & co., Inc. and Hanifen, Imhoff Inc., as Initial
Purchasers, relating to MWI's $300,000,000 aggregate
principal amount of 8 3/4% Senior subordinated Notes due 2008 --
incorporated by reference from Exhibit 10.27 of the
Company's Annual Report on form 10-K for the year ended
December 31, 1998.
27.1<F*> Financial Data Schedule for six-months ended June 30, 1999
[FN]
- -----------
<F*> Filed herewith.
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 22, 1999, announcing the
financial results of the company for the quarter ending March 31, 1999.
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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/ Gerald F. Mahoney
---------------------------------
Date: August 13, 1999 Gerald F. Mahoney
Chairman of the Board/
Chief Executive Officer
By /s/ Gary H. Ritondaro
---------------------------------
Date: August 13, 1999 Gary H. Ritondaro
Senior Vice President,
Chief Financial Officer
33
<TABLE> <S> <C>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,597
<SECURITIES> 3,925
<RECEIVABLES> 154,970
<ALLOWANCES> 0
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<CURRENT-ASSETS> 346,288
<PP&E> 632,293
<DEPRECIATION> (126,332)
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<BONDS> 0
0
0
<COMMON> 490
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<TOTAL-LIABILITY-AND-EQUITY> 1,301,415
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<TOTAL-REVENUES> 879,463
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<OTHER-EXPENSES> (704)
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<EPS-BASIC> 0.61
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</TABLE>
