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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
MAY 5, 2000
MAIL-WELL, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO
(State or Other Jurisdiction of Incorporation)
1-12551 84-1250533
(Commission File Number) (IRS Employer Identification Number)
23 INVERNESS WAY EAST, ENGLEWOOD, CO 80112
(Address of principal executive offices) (Zip Code)
303-790-8023
(Registrant's telephone number, including area code)
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS
Mail-Well, Inc. (the "Company") completed its cash tender offer of
$20.00 per share for all outstanding shares of common stock of American
Business Products, Inc. ("ABP"), as scheduled, at 12:00 midnight,
Eastern Standard Time, on Friday, February 18, 2000. The Company has
accepted for purchase all shares validly tendered and not withdrawn
prior to the expiration of the offer. Based on information provided by
American Securities Transfer & Trust, Inc. as depositary, approximately
13.5 million shares of ABP were acquired by the Company out of
approximately 14.8 million shares currently outstanding. Approximately
1.3 million shares remained untendered as of the expiration of the
tender offer.
As a result of the offer, the Company acquired more than 90% of ABP's
outstanding shares, thereby permitting the second step of the
acquisition without a meeting of ABP's stockholders. Each share of ABP
not previously purchased in the tender offer has been converted into the
right to receive $20.00 in cash pursuant to a merger with a subsidiary
of the Company. The merger was completed on February 22, 2000.
ABP is a premier provider of printed office products and specialty
packaging solutions through its Curtis 1000, International Envelope,
Discount Labels and Jen-Coat business units. ABP reported 1999 sales of
$475.9 million and net income and earnings per diluted share from
continuing operations of $19.7 million and $1.31, respectively.
In February 2000, the Company entered into an $800.0 million senior
secured credit facility (the "New Facility"). The proceeds were used to
finance the acquisition of ABP, pay related costs and expenses,
refinance its unsecured revolving loan facilities, and reduce the
amounts drawn under the accounts receivable securitization, with the
remainder to provide funds for ongoing general corporate purposes. In
conjunction with the financing, Mail-Well Trade Receivables Corp., a
wholly owned subsidiary of the Company, reduced its ability to sell an
undivided variable percentage interest in the pool of receivables to
$25.0 million, which was increased to $75.0 million in March, 2000.
The New Facility consists of a $250 million revolving credit facility, a
$300 million Tranche A term loan and a $250 million Tranche B term loan.
The Tranche A facility and Tranche B facility amortize over six and
seven years, respectively. The Company borrowed $100.0 million under
the revolving credit facility on February 22, 2000. The New Facility
contains certain financial and other covenants that are customary for
credit facilities of its type and size. The New Facility is secured by
substantially all tangible and intangible property of U.S. entities
except the accounts receivable sold under the securitization program and
certain property and equipment under capital lease obligations.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
AMERICAN BUSINESS PRODUCTS, INC.
Report of Independent Auditors
Consolidated Statements of Income for each of the three years in the
period ended December 31, 1999
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1999
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1999
Notes to the Consolidated Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited pro forma condensed consolidated balance
sheet and statement of income give effect to the new credit facility and
the following acquisitions, which have been accounted for using the
purchase method of accounting:
1
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<PAGE>
Name of Business Acquired Month and Year of Acquisition
- ------------------------- -----------------------------
Champagne Fine Printing February, 1999
Colorhouse, Inc. February, 1999
Porter Chadburn, plc April, 1999
Forman Lithograph, Inc. May, 1999
Avon Behren Printing Company June, 1999
Design Mark Industries, Inc. June, 1999
Direct Graphics, Inc. August, 1999
Enterprise Press August, 1999
Northeastern Envelope October, 1999
Phototype Color Graphics December, 1999
Braceland Brothers January, 2000
American Business Products, Inc. February, 2000
The unaudited pro forma condensed consolidated balance sheet gives
effect to the 2000 purchase transactions and the New Facility as if they
had occurred on December 31, 1999. The unaudited pro forma condensed
consolidated statement of income for the year ended December 31, 1999
gives effect to the 1999 and 2000 purchase transactions and the New
Facility as if they had occurred on January 1, 1999.
The unaudited pro forma condensed consolidated financial statements are
provided for comparative purposes and have been prepared based upon the
historical financial statements of the Company and each acquired
company. The factually supportable pro forma adjustments, which are
described in the accompanying notes, reflect the Company's preliminary
assumptions and estimates based upon available information. The
unaudited pro forma condensed consolidated financial statements do not
purport to be indicative of the results which would actually have been
obtained if the transactions had been effected on the date indicated nor
are they necessarily indicative of the results of operations that may be
achieved in the future. The unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the historical
financial statements and related notes thereto of the Company and
American Business Products, Inc.
(c) EXHIBITS
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
2
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<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(AS OF DECEMBER 31, 1999)
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL HISTORICAL PRO FORMA ADJUSTMENTS MAIL-WELL
MAIL-WELL ABP BRACELAND ADJUSTMENTS BRACELAND PRO FORMA
---------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,618 $ 30,920 $ 31 $ (13,074) <FB> $(10,767)<FE> $ 10,728
Receivables, net 85,044 57,764 4,108 (365) <FC> - 266,027
119,476 <FB>
Investment in accounts
receivable securitization 54,396 - - - 54,396
Accounts receivable--other 20,764 - 178 - - 20,942
Inventories, net 144,756 32,274 1,703 - 93 <FE> 178,826
Other current assets 25,551 9,940 692 (119) <FA> - 36,064
---------- -------- -------- --------- -------- ----------
Total current assets 334,129 130,898 6,712 105,918 (10,674) 566,983
PROPERTY, PLANT AND EQUIPMENT, NET 532,156 84,469 5,791 (3,654) <FA> 1,778 <FE> 620,540
GOODWILL, NET 448,713 35,456 - 26,725 <FA> 2,177 <FE> 513,071
OTHER INTANGIBLES, NET 4,770 461 - 123,748 <FA> 128,979
DEFERRED INCOME TAXES 18 9,842 - - - 9,860
OTHER ASSETS, NET 24,255 14,613 - (233) <FA> - 51,016
13,045 <FB>
(664) <FD>
---------- -------- -------- --------- -------- ----------
TOTAL $1,344,041 $275,739 $ 12,503 $ 264,885 $ (6,719) $1,890,449
========== ======== ======== ========= ======== ==========
CURRENT LIABILITIES
Accounts payable $ 122,740 $ 22,819 $ 2,344 $ (365) <FC> $ - $ 147,538
Accrued compensation and vacation 50,042 5,996 - 4,152 <FA> - 60,190
Other current liabilities 52,999 19,641 404 161 <FA> - 72,887
(318) <FB>
Current portion of long-term
debt and capital leases 13,889 7,969 3,340 (6,953) <FB> (3,212)<FE> 15,033
---------- -------- -------- --------- -------- ----------
Total current liabilities 239,670 56,425 6,088 (3,323) (3,212) 295,648
LONG-TERM DEBT AND CAPITAL LEASES 653,090 27,031 4,491 429,232 <FB> (1,583)<FE> 1,112,261
DEFERRED INCOME TAXES 64,112 - - - - 64,112
OTHER LONG-TERM LIABILITIES 8,351 31,923 - - - 40,274
---------- -------- -------- --------- -------- ----------
Total liabilities 965,223 115,379 10,579 425,909 (4,795) 1,512,295
MINORITY INTEREST IN NON VOTING
STOCK OF SUBSIDIARY 3,508 - - - - 3,508
SHAREHOLDERS' EQUITY
Preferred stock - - - - - -
Common stock 492 33,877 10 (33,877) <FA> (10)<FE> 492
Paid-in capital 219,795 10,838 1,455 (10,838) <FA> (1,455)<FE> 219,795
Retained earnings 155,222 155,101 459 (155,101) <FA> (459)<FE> 154,558
(664) <FD>
Accumulated other comprehensive
income (loss) (199) (468) - 468 <FA> - (199)
Less: Treasury Stock - (38,988) - 38,988 <FA> - -
---------- -------- -------- --------- -------- ----------
Total shareholders' equity 375,310 160,360 1,924 (161,024) (1,924) 374,646
---------- -------- -------- --------- -------- ----------
TOTAL $1,344,041 $275,739 $ 12,503 $ 264,885 $ (6,719) $1,890,449
========== ======== ======== ========= ======== ==========
See notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
</TABLE>
3
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Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
[FN]
<FA> The following summarizes the total purchase price and the related
initial purchase price allocation to the net assets acquired of
ABP (in thousands):
<TABLE>
<S> <C>
Total purchase price:
Purchase of outstanding shares $ 295,649
Exercise of options, net of cash received 1,607
Debt paid 27,842
Transaction costs 5,258
---------
Total fair value purchase price $ 330,356
=========
Purchase price allocation:
Total fair value purchase price $ 330,356
Historical net assets acquired, net of debt paid
off at acquisition (188,202)
---------
Excess purchase price 142,154
Allocation of purchase price to:
Increase fair value of other intangible assets (123,748)
Reduce fair value of other current assets 119
Reduce fair value of property and equipment 3,654
Reduce other assets, net 233
Increase accrued compensation and vacation 4,152
Increase other current liabilities 161
---------
Excess purchase price allocated to goodwill $ 26,725
=========
</TABLE>
The increase in accrued compensation and vacation includes severance
related to the lay-off of 22 people located in the ABP corporate
headquarters. See more information in Note (D) to the Notes to
Unaudited Pro Forma Condensed Consolidated Statements of Income.
The Company has not completed the final assessment of the fair value of
ABP's fixed assets, post-retirement liabilities and other identifiable
assets and liabilities assumed for purposes of allocating the purchase
price. As a result, certain of the above allocations are estimates and
are subject to revision once the final assessments are completed.
<FB> In connection with the acquisition, the Company entered into an
$800.0 million senior secured credit facility (the "New Facility"). The
proceeds were used to purchase the equity of ABP discussed in (A) above,
pay related costs and expenses, refinance the unsecured revolving loan
facilities, and reduce the amounts drawn under the accounts receivable
securitization to a total of $25.0 million, with the remainder to
provide funds for ongoing general corporate purposes and proposed
acquisitions under letters of intent. The following table summarizes
the sources and uses of the borrowings under the credit facility (in
thousands):
Proceeds from the new credit facility $ 650,000
Less cash used for:
Purchase of ABP outstanding shares (295,649)
Refinance existing Company debt (200,197)
Refinance existing ABP debt - short-term (6,953)
Refinance existing ABP debt - long-term (20,571)
Refinance existing ABP debt - accrued interest (318)
Refinance asset securitization (119,476)
Pay refinancing transaction costs (13,045)
Option exercises, net of cash received (1,607)
Pay acquisition transaction costs (5,258)
---------
Net cash used $ (13,074)
=========
4
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<FC> Pro forma adjustment to eliminate intercompany payables and
receivables between the Company and ABP at December 31, 1999.
<FD> Pro forma adjustment to write-off capitalized financing costs
related to debt that was paid off.
<FE> The following summarizes the total purchase price and the related
initial purchase price allocation to the net assets acquired of
Braceland (in thousands):
<TABLE>
<S> <C>
Total purchase price:
Purchase of net assets $ 5,441
Debt paid off at acquisition 5,326
-------
Total fair value purchase price $10,767
=======
Purchase price allocation:
Total fair value purchase price $10,767
Historical net assets acquired, net of debt paid off
at acquisition (7,250)
-------
Excess purchase price 3,517
Allocation of purchase price to:
Increase fair value of inventory (93)
Increase fair value of property and equipment (1,778)
Increase fair value of capital lease 531
-------
Excess purchase price allocated to goodwill $ 2,177
=======
</TABLE>
The Company has not completed the final assessment of the fair value of
Braceland's fixed assets and other identifiable assets and liabilities
assumed for purposes of allocating the purchase price. As a result,
certain of the above allocations are estimates and are subject to
revision once the final assessments are completed.
5
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<TABLE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(FOR THE 12 MONTHS ENDED DECEMBER 31, 1999)
<CAPTION>
1999
Acquisitions Braceland Mail-Well
Historical Pro Forma Historical Pro Forma Historical Pro Forma Pro Forma
Mail Well Adjustments<FA> ABP Adjustments Braceland Adjustments Combined
---------- --------------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
NET SALES $1,848,041 $91,235 $475,933 $ (3,698) <FE> $30,253 $ - $2,441,764
COST OF SALES 1,418,715 65,335 345,500 (1,862) <FB> 24,887 26 <FG> 1,840,464
(8,439) <FD>
(3,698) <FE>
---------- ------- -------- -------- ------- ----- ----------
GROSS PROFIT 429,326 25,900 130,433 10,301 5,366 (26) 601,300
OTHER OPERATING COSTS
Selling, administrative
and other 267,033 19,281 99,787 8,594 <FB> 4,568 73 <FG> 393,262
(6,074) <FD>
---------- ------- -------- -------- ------- ----- ----------
Total other operating
costs 267,033 19,281 99,787 2,520 4,568 73 393,262
---------- ------- -------- -------- ------- ----- ----------
OPERATING INCOME 162,293 6,619 30,646 7,781 798 (99) 208,038
OTHER (INCOME) EXPENSE
Interest expense 55,247 4,534 4,026 1,847 <FB> 638 (339)<FH> 92,360
26,407 <FC>
Other (income) expense (784) 277 (3,826) - (12) - (4,345)
---------- ------- -------- -------- ------- ----- ----------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY
ITEM 107,830 1,808 30,446 (20,473) 172 240 120,023
PROVISION FOR INCOME TAXES 43,348 727 10,757 (6,750) <FF> 69 96 <FF> 48,247
---------- ------- -------- -------- ------- ----- ----------
INCOME FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY ITEM $ 64,482 $ 1,081 $ 19,689 $(13,723) $ 103 $ 144 $ 71,776
========== ======= ======== ======== ======= ===== ==========
PER COMMON SHARE
Income from continuing
operations
Basic $ 1.32 $ 1.31 $ 1.47
Diluted $ 1.20 $ 1.31 $ 1.32
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 48,990 14,979 48,990
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 58,154 14,996 58,154
See notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
</TABLE>
6
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<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Income
[FN]
<FA> The 1999 acquisitions pro forma adjustments column are adjustments
to reflect all 1999 acquisitions as if they had occurred as of
January 1, 1999.
<FB> Pro forma adjustment to ABP depreciation and amortization to
reflect the depreciation and amortization of the fair values of
property and equipment, identifiable intangibles and goodwill over
their estimated useful lives, as follows (in thousands):
<TABLE>
<CAPTION>
Annual Depreciation and Amortization
------------------------------------
Property and Financing
Asset Cost Life Equipment Intangibles Costs Total
----- ---- ---- ------------ ----------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Property and Equipment $ 80,815 Various $11,676 $ - $ - $11,676
Other Intangible 4.0 to 40.0
Assets $124,209 years - 8,379 - 8,379
Deferred
Financing Costs $ 13,045 6.3 years - - 2,071 2,071
Goodwill $ 62,181 30.0 years - 2,073 - 2,073
------- ------- ------ -------
Total 11,676 10,452 2,071 24,199
Less historical depreciation
and amortization 13,760 1,636 224 15,620
------- ------- ------ -------
Pro forma adjustment $(2,084) $ 8,816 $1,847 $ 8,579
======= ======= ====== =======
</TABLE>
The Company allocated the Pro forma adjustment related to Property and
Equipment to cost of goods sold ($1,862) and Selling, administrative and
other ($222) based upon the type of asset adjusted.
Other intangible assets consist of customer lists, patents, copyrights,
trademarks and trade names and unpatented proprietary technology.
<FC> Pro forma adjustment to interest expense of both the Company and
ABP to reflect the interest expense on the new credit facility,
partially offset by the elimination of interest expense related to
the debt repaid, as follows (in thousands):
<TABLE>
<S> <C>
Interest on borrowings of $650 million under the new credit facility
at an average interest rate of approximately 7.53% $ 48,945
Commitment fees on unused portion of credit facility 750
Plus increase in interest expense on debt refinanced due to increase
in interest rate from 7.20% to 7.53% 2,740
Less historical interest expense on the following debt repaid:
Mail-Well existing debt (24,071)
ABP existing debt (1,957)
--------
Pro forma adjustment $ 26,407
========
</TABLE>
7
<PAGE>
<PAGE>
<FD> Pro forma adjustment to reflect cost savings to be realized due to
synergies to be realized from the merger of the Company and ABP,
as follows (in thousands):
<TABLE>
<CAPTION>
Adjustment Effect on Effect on Selling, Total
---------- --------- ------------------ -----
Cost of Sales Administrative and
------------- ------------------
Other
-----
<S> <C> <C> <C>
Close ABP corporate office $ - $ 7,114 $ 7,114
Curtis 1000 purchases forms from
Mail-Well rather than external source 2,818 (1,040) 1,778
Curtis 1000 purchases envelopes from
Mail-Well rather than an external source 2,542 - 2,542
Mail-Well's envelope segment purchases Tyvek(R)
envelopes from ABP 2,418 - 2,418
Savings on Mail-Well purchases of raw
materials under an ABP materials contract 661 - 661
------ ------- -------
Totals $8,439 $ 6,074 $14,513
====== ======= =======
</TABLE>
Close ABP corporate office - Key functions at ABP's corporate office
include finance, tax planning and reporting, investor relations, human
resources, risk management and information technology coordination.
These functions are duplicated in the Mail-Well corporate office. All
personnel have been given notice and will leave over the first 90 days
after acquisition. After analysis, we will not have to hire anyone to
replace the work being performed; therefore, all personnel, office
facilities, and other operating costs have been removed in an adjustment
to the pro-forma statement of income.
Curtis 1000 purchases forms from Mail-Well rather than from an external
source - A segment of ABP purchased forms from Mail-Well and other
companies in 1999. Mail-Well has the capability and capacity to produce
the majority of Curtis' forms needs at a profit. The pro-forma
adjustment includes consideration of the additional sales and customer
service personnel that would have been hired to service the business.
The adjustment also considered the elimination of the difference between
what Curtis paid in 1999 compared to the cost for Mail-Well to produce
the product.
Curtis 1000 purchases envelopes from Mail-Well rather than from an
external source - Curtis purchased envelopes from Mail-Well and other
companies in 1999. Mail-Well has the capability and capacity to produce
the majority of Curtis' envelopes needs at a profit. The adjustment also
considered the elimination of the difference between what Curtis paid in
1999 compared to the cost for Mail-Well to produce the product.
Mail-Well's envelope segment purchases Tyvek(R) envelopes from ABP -
Mail-Well purchased Tyvek(R) envelopes from ABP and other companies in
1999. ABP has the capability and capacity to produce the majority of
Mail-Well Envelope's Tyvek(R) needs at a profit. The adjustment also
considered the elimination of the difference between what Mail-Well paid
in 1999 compared to the cost for ABP to produce the product.
Savings on Mail-Well purchases of raw materials under an ABP materials
contract - ABP has a favorable contract to purchase substrate from a
vendor. If Mail-Well had purchased its substrate under this contract it
would have generated a substantial savings. We have only included those
amounts where the contract covered specific types of substrate.
8
<PAGE>
<PAGE>
<FE> Pro forma adjustment to eliminate intercompany sales and purchases
between the Company and ABP during 1999.
<FF> Pro forma adjustment to reflect tax effect of pro forma
adjustments at an effective rate to maintain Mail-Well's blended
rate of 40.2%.
<FG> Pro forma adjustment to Braceland depreciation and amortization to
reflect the depreciation and amortization of the fair values of
property and equipment, identifiable intangibles and goodwill over
their estimated useful lives, as follows (in thousands):
<TABLE>
<CAPTION>
Property and
Asset Cost Life Equipment Intangibles Total
----- ---- ---- ------------ ----------- -----
<S> <C> <C> <C> <C> <C>
Property and Equipment $7,487 Various $1,119 $ - $1,119
Goodwill $2,177 30.0 years - 73 73
------ --- ------
Total 1,119 73 1,192
Less historical depreciation
and amortization 1,093 - 1,093
------ --- ------
Pro forma adjustment $ 26 $73 $ 99
====== === ======
</TABLE>
<FH> Pro forma adjustment to interest expense of Braceland to reflect
the interest expense related to new capital lease terms offset by
the elimination of interest expense related to the debt repaid, as
follows (in thousands):
Interest on new capital lease terms $ 79
Less historical interest expense on debt repaid (418)
-----
Pro forma adjustment $(339)
=====
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 hereunto duly authorized.
MAIL-WELL, INC.
(Registrant)
Date: May 5, 2000 By /s/ Gary H. Ritondaro
-----------------------------------------
Gary H. Ritondaro, Senior Vice President
And Chief Financial Officer
9
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
American Business Products, Inc.:
We have audited the consolidated balance sheets of American Business
Products, Inc. and subsidiaries (the "Company") as of December 31, 1999 and
1998, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of American Business
Products, Inc. and subsidiaries at December 31, 1999 and 1998 and the
results of their operations and their cash flows for each of three years
in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Atlanta, Georgia
February 10, 2000
F-1
<PAGE>
<PAGE>
<TABLE>
AMERICAN BUSINESS PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
(In thousands, except per share amounts)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
NET SALES $475,933 $461,270 $453,315
COST AND EXPENSES
Cost of goods sold 345,500 325,723 323,390
Selling and administrative expenses 99,787 98,498 99,949
Restructuring and other charges - 5,155 3,990
---------- ---------- ----------
445,287 429,376 427,329
---------- ---------- ----------
OPERATING INCOME 30,646 31,894 25,986
OTHER INCOME (EXPENSE)
Interest expense (4,026) (6,950) (6,529)
Interest income 2,231 4,256 4,200
Miscellaneous-net 1,595 257 4,786
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 30,446 29,457 28,443
PROVISION (BENEFIT) FOR INCOME TAXES
Current
Federal 5,026 9,355 8,779
State (48) 1,850 2,239
Deferred 5,779 (85) (978)
---------- ---------- ----------
10,757 11,120 10,040
---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 19,689 18,337 18,403
DISCONTINUED OPERATION
Income from operations - net of income taxes
of $479 and $631 - 637 839
Loss on disposal - net of income
tax benefit of $542 and $4,954 (1,513) (7,187) -
---------- ---------- ----------
INCOME (LOSS) FROM DISCONTINUED OPERATION (1,513) (6,550) 839
---------- ---------- ----------
NET INCOME $18,176 $11,787 $19,242
========== ========== ==========
PER COMMON SHARE
Income from continuing operations
Basic $1.31 $1.15 $1.12
Diluted $1.31 $1.15 $1.11
Income (loss) from discontinued operation
Basic ($0.10) ($0.41) $0.05
Diluted ($0.10) ($0.41) $0.05
Net Income
Basic $1.21 $0.74 $1.17
Diluted $1.21 $0.74 $1.16
See Notes to Consolidated Financial Statements
</TABLE>
F-2
<PAGE>
<PAGE>
<TABLE>
AMERICAN BUSINESS PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(In thousands, except share amounts)
<CAPTION>
1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $30,920 $60,034
Accounts receivable, less allowances of $2,065 and $1,133 58,441 50,398
Inventories 32,274 32,044
Net assets of discontinued operation - 15,000
Other 9,263 8,735
---------- ----------
Total Current Assets 130,898 166,211
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land 2,223 2,523
Buildings and improvements 38,778 38,115
Machinery, equipment and software 111,284 82,252
Construction in progress 2,100 12,091
---------- ----------
154,385 134,981
Less accumulated depreciation 69,916 57,640
---------- ----------
84,469 77,341
INTANGIBLE ASSETS FROM ACQUISITIONS
Goodwill, less amortization of $7,102 and $5,863 35,456 26,339
Other, less amortization of $5,725 and $5,328 461 619
---------- ----------
35,917 26,958
DEFERRED INCOME TAXES 9,842 14,724
OTHER ASSETS 14,613 16,010
---------- ----------
TOTAL ASSETS $275,739 $301,244
========== ==========
CURRENT LIABILITIES
Accounts payable $42,460 $45,881
Salaries and wages 4,291 9,442
Profit sharing contributions 1,705 3,473
Current maturities of long-term debt 7,969 8,833
---------- ----------
Total Current Liabilities 56,425 67,629
LONG-TERM DEBT 27,031 34,016
SUPPLEMENTAL RETIREMENT BENEFITS 18,323 20,418
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS 13,600 16,441
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY
Common stock - $2 par value, authorized 50,000,000
shares, issued 16,938,497 and 16,740,197 shares 33,877 33,480
Additional paid-in capital 10,838 8,169
Retained earnings 155,101 146,824
Unearned compensation on restricted stock (468) -
---------- ----------
199,348 188,473
Less 2,158,730 and 1,330,102 shares
of common stock in treasury - at cost 38,988 25,733
---------- ----------
160,360 162,740
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $275,739 $301,244
========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
F-3
<PAGE>
<PAGE>
<TABLE>
AMERICAN BUSINESS PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------------ PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 16,620,848 $33,242 $ 6,118 $136,003
Net income 19,242 $19,242
Other comprehensive income (loss) (390)
-------------
Total comprehensive income $18,852
=============
Dividends paid, $0.62 per share (10,183)
Exercise of stock options 55,084 110 1,004
Restricted stock awards 1,000 2 22
Repurchase of common stock
----------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 16,676,932 33,354 7,144 145,062
Net income 11,787 $11,787
Other comprehensive income (loss) (261)
-------------
Total comprehensive income $11,526
=============
Dividends paid, $0.63 per share (10,025)
Exercise of stock options 50,823 101 771
Restricted stock awards 12,442 25 254
Repurchase of common stock
----------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 16,740,197 33,480 8,169 146,824
Net income 18,176 $18,176
-------------
Total comprehensive income $18,176
=============
Dividends paid, $0.66 per share (9,899)
Exercise of stock options 21,000 42 310
Restricted stock awards 177,300 355 2,359
Repurchase of common stock
----------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 16,938,497 $33,877 $10,838 $155,101
============================================================================
<PAGE>
<CAPTION>
ACCUMULATED
UNEARNED OTHER TREASURY STOCK TOTAL
COMPENSATION ON COMPREHENSIVE -------------------------- STOCKHOLDERS'
RESTRICTED STOCK INCOME SHARES AMOUNT EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ - $ 651 (213,256) $ (3,023) $172,991
Net income 19,242
Other comprehensive income (loss) (390) (390)
Total comprehensive income
Dividends paid, $0.62 per share (10,183)
Exercise of stock options (22,203) (535) 579
Restricted stock awards 24
Repurchase of common stock (26,200) (566) (566)
---------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 - 261 (261,659) (4,124) 181,697
Net income 11,787
Other comprehensive income (loss) (261) (261)
Total comprehensive income
Dividends paid, $0.63 per share (10,025)
Exercise of stock options (943) (22) 850
Restricted stock awards 279
Repurchase of common stock (1,067,500) (21,587) (21,587)
---------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 - - (1,330,102) (25,733) 162,740
Net income 18,176
Total comprehensive income
Dividends paid, $0.66 per share (9,899)
Exercise of stock options 6,216 98 450
Restricted stock awards (468) (101,744) (1,539) 707
Repurchase of common stock (733,100) (11,814) (11,814)
---------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 $(468) $ - (2,158,730) $(38,988) $160,360
=================================================================================
See Notes to Consolidated Financial Statements
</TABLE>
F-4
<PAGE>
<PAGE>
<TABLE>
AMERICAN BUSINESS PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
(In thousands)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Continuing operations:
Income from continuing operations $19,689 $18,337 $18,403
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,395 12,285 11,697
(Gain)/loss on disposition of plant and equipment 95 4,094 (3,592)
Loss on sale of foreign joint venture investment - 1,849 -
Change in assets and liabilities, excluding
effects of acquisitions and dispositions:
(Increase) decrease in accounts receivable (5,784) 863 1,025
(Increase) decrease in inventories 790 (2,162) 5,904
(Increase) decrease in other current assets 1,795 3,953 (533)
(Increase) decrease in other assets 1,196 (80) (2,225)
(Increase) decrease in deferred income taxes 4,207 (727) (1,005)
Decrease in accounts payable (3,898) (2,908) (77)
Increase (decrease) in other current liabilities (5,598) 1,581 (4,615)
Increase (decrease) in supplemental retirement,
postemployment and postretirement benefits (4,936) (43) 1,082
----------- ----------- -----------
Total adjustments 3,262 18,705 7,661
----------- ----------- -----------
Net cash provided by continuing operations 22,951 37,042 26,064
Discontinued operation:
Income (loss) from discontinued operation (1,513) (6,550) 839
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,136 2,610 2,583
Gain on disposition of plant and equipment - (64) (39)
Write-down of assets to net realizable value 1,156 10,993 -
Change in assets and liabilities:
(Increase) decrease in accounts receivable 1,401 (2,193) 535
(Increase) decrease in inventories 267 (50) 693
Increase in other current assets (1,677) (4,230) (255)
(Increase) decrease in other assets 42 (40) 97
(Increase) decrease in deferred income taxes 675 (52) 47
Increase (decrease) in accounts payable (3,419) 4,634 (254)
Decrease in other current liabilities (208) (151) (540)
Increase in supplemental retirement,
postemployment and postretirement benefits - 84 95
----------- ----------- -----------
Total adjustments (627) 11,541 2,962
----------- ----------- -----------
Net cash (used) provided by discontinued operations (2,140) 4,991 3,801
Net cash provided by operating activities 20,811 42,033 29,865
F-5
<PAGE>
<PAGE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
(In thousands)
(continued)
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Continuing operations:
(Increase) decrease in cash value of life insurance 353 3,264 (1,472)
Proceeds from sale of foreign joint venture investment - 4,446 -
Net assets acquired (15,451) - -
Additions to property, plant and equipment (16,607) (20,433) (17,084)
Proceeds from disposition of property, plant and
equipment 463 2,931 7,127
----------- ----------- -----------
(31,242) (9,792) (11,429)
Discontinued operation:
Additions to property, plant and equipment (2,328) (4,875) (3,710)
Proceeds from disposition of discontinued operation 12,033 - -
Proceeds from disposition of property, plant and
equipment 17 107 104
----------- ----------- -----------
9,722 (4,768) (3,606)
----------- ----------- -----------
Net cash used by investing activities (21,520) (14,560) (15,035)
CASH FLOWS FROM FINANCING ACTIVITIES
Continuing operations:
Increase in long-term debt 1,016 - -
Reductions of long-term debt (8,689) (11,873) (11,933)
Repurchase of common stock (11,814) (21,587) (566)
Sales and issuances of common stock 1,157 1,129 603
Dividends paid (9,899) (10,025) (10,183)
----------- ----------- -----------
(28,229) (42,356) (22,079)
Discontinued operation:
Reductions of long-term debt (176) (175) (175)
----------- ----------- -----------
Net cash used by financing activities (28,405) (42,531) (22,254)
Net decrease in cash and cash equivalents (29,114) (15,058) (7,424)
Cash and cash equivalents at beginning of year 60,034 75,092 82,516
----------- ----------- -----------
Cash and cash equivalents at end of year $30,920 $60,034 $75,092
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized) $5,470 $7,233 $7,740
Income taxes $6,360 $7,969 $11,099
See Notes to Consolidated Financial Statements
</TABLE>
F-6
<PAGE>
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of American Business Products, Inc. and its
subsidiaries (the "Company"). Intercompany balances and transactions
have been eliminated. These financial statements have been prepared in
accordance with generally accepted accounting principles, which in
certain instances requires the use of management's estimates. Actual
results could differ from those estimates.
NATURE OF OPERATIONS: The Company operates two businesses: specialty
packaging and printed office products. The Company's specialty
packaging business is comprised of three segments: the extrusion of
polyethylene and other materials onto papers and nonwovens used in
packaging and other products, the manufacture of soft packages including
Tyvek(R) mailers, and the manufacture of labels. The Company's printed
office products business is comprised of a single segment which supplies
custom-printed envelopes and labels, digital document services and
business forms. The markets for these products are located principally
throughout the continental United States.
CASH AND CASH EQUIVALENTS: The Company invests cash in excess of daily
operating requirements in income producing investments. Such amounts,
stated at cost which approximates market, at December 31, 1999 and 1998
were $23,623,000 and $53,876,000, respectively. All such investments
have an original maturity of 90 days or less and are considered to be
cash equivalents. Amounts due banks upon the clearance of certain
checks under the Company's cash management program have been included in
accounts payable. At December 31, 1999 and 1998 such amounts were
$10,501,000 and $9,172,000, respectively.
INVENTORIES: Inventories are valued at the lower of cost or market.
Cost is determined by the first-in, first-out (FIFO) method.
INTANGIBLE ASSETS: The excess of cost over amounts assigned to tangible
assets of purchased subsidiaries (goodwill) is being amortized on the
straight-line basis over periods of 15 to 40 years. The Company
evaluates the net carrying value of such assets based on expectations of
nondiscounted cash flows of each subsidiary for which such assets are
recorded. The Company believes no material impairment of such assets
exists. Other acquired intangibles are principally non-compete
agreements and are being amortized on a straight-line basis over periods
of 40 to 84 months.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated
at cost. Depreciation is computed using the straight-line method for
financial reporting purposes and accelerated depreciation methods for
income tax purposes. Depreciation expense from continuing operations
was $13,760,000, $11,021,000, and $10,433,000 for 1999, 1998 and 1997,
respectively. Total depreciation expense, including the discontinued
operation, was $14,918,000, $13,631,000, and $13,016,000 for 1999, 1998
and 1997, respectively.
INCOME TAXES: Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, SFAS 109 generally considers all expected future events
other than proposed enactments of changes in the tax law or rates.
ENVIRONMENTAL COSTS: Environmental expenditures that relate to current
operations are expensed or capitalized as appropriate. Remediation
costs of existing conditions caused by past operations are accrued when
it is probable that a liability has been incurred and the cost can be
reasonably estimated.
REVENUE RECOGNITION: Sales and related costs are generally recorded by
the Company upon shipment of products to its customers. Under
contractual agreement with customers, sales of certain custom products
are recognized upon completion of the order and invoiced under normal
credit terms.
F-7
<PAGE>
<PAGE>
STOCK BASED COMPENSATION: As permitted under Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123"), the Company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees", and related interpretations. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. Compensation cost for
non-vested restricted stock awarded under fixed plans to an employee is
measured at the grant date based on the market price of a share of non-
restricted stock on the grant date. The compensation cost is recognized
over the vesting period. Compensation cost for non-vested stock awarded
under variable plans to an employee is determinable only upon the
ultimate vesting of the shares and is measured by the number of shares
ultimately vested at the then current market price of the stock. At
date of grant, the fair value of these shares is recorded as unearned
compensation.
NET INCOME PER COMMON SHARE: Net income per common share amounts are
based upon the weighted average number of common and common equivalent
shares outstanding during the respective years. The average number of
common shares used in the calculation of basic net income per common
share was 14,978,941 in 1999, 15,947,591 in 1998, and 16,421,808 in
1997. The average number of common and common equivalent shares used in
the calculation of diluted net income per common share was 14,996,358 in
1999, 16,003,543 in 1998, and 16,525,309 in 1997. Options to purchase
1,065,302, 571,852, and 58,887 shares of common stock at prices ranging
from $16.17 to $27.50 per share were outstanding as of December 31,
1999, 1998 and 1997, respectively but were not included in the
computation of diluted net income per share because the options'
exercise price was greater than the average market price of the common
shares. The only common equivalent shares are those related to stock
options outstanding during the respective years.
FOREIGN CURRENCY TRANSLATION: The Company's former investment in a 50
percent owned foreign joint venture was translated at the rate in effect
at the balance sheet date. The Company's share of net income of the
joint venture was translated at average exchange rates prevailing during
the year. Resulting translation adjustments were reported separately as
a component of accumulated other comprehensive income.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: In June 1998, the
Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137 which deferred the effective date of SFAS 133 to all
fiscal quarters of fiscal years beginning after June 15, 2000. The
Company has not completed the process of evaluating the impact that will
result from adopting SFAS 133. The Company is therefore unable to
disclose the impact that adopting SFAS 133 will have on its financial
position and results of operations when such statement is adopted.
RECLASSIFICATION: Certain 1998 and 1997 amounts have been reclassified
to conform with the 1999 presentation.
2. SUBSEQUENT EVENT
On January 21, 2000, Sherman Acquisition Corporation, an indirect wholly
owned subsidiary of Mail-Well, Inc. made an offer to purchase for cash
all the outstanding shares of the Company at $20.00 net per share. The
offer and withdrawal rights will expire at 12:00 midnight, New York City
time, on Friday, February 18, 2000, unless the offer is extended.
This offer is being made in connection with the agreement and plan of
merger dated as of January 13, 2000 ("Merger Agreement") among Mail-
Well, Inc., Sherman Acquisition Corporation and the Company. The Board
of Directors of the Company has unanimously approved and adopted the
Merger Agreement, approved the offer and the merger, has determined that
the terms of the offer and the merger are fair to, and in the best
interests of, the
F-8
<PAGE>
<PAGE>
Company's stockholders and recommends that holders of the shares accept
the offer and tender their shares pursuant to the offer.
The offer is conditioned upon, among other things, (I) there being
validly tendered and not withdrawn prior to the expiration of the offer
such number of shares that would constitute more than fifty percent of
the shares that are outstanding determined on a fully diluted basis,
(II) any waiting period under the Hart-Scott-Rodino antitrust
improvements act of 1976, as amended, applicable to the purchase of
shares pursuant to the offer having expired or having been terminated
prior to the expiration of the offer and (III) the satisfaction of
certain other terms and conditions.
3. ACQUISITION
On April 30, 1999 the Company acquired substantially all of the
property, rights and assets of Tekkote Corp., a manufacturer of coated
and printed products for use in packaging and related fields. The
transaction has been accounted for as a purchase with the results of
Tekkote Corp. included with those of the Company's extrusion coating and
laminating segment beginning May 1, 1999. The negotiated purchase price
was $13,900,000 in cash and assumption of a note payable of $1,016,000.
The principal and interest, which accrues at a variable rate equal to
LIBOR, of the note are due October 31, 2000.
The following are the components of net assets acquired of Tekkote
Corp.:
(in thousands) APRIL 30, 1999
Accounts receivable $ 2,258
Inventory 1,019
Other current assets 10
Property, plant and equipment 5,875
Other long-term assets 152
Goodwill 10,359
Other intangible assets 238
Accounts payable (3,788)
Accrued liabilities (297)
Other current liabilities (375)
-------
Net assets acquired $15,451
=======
The acquired goodwill is being amortized on the straight-line basis over
20 years.
4. DISCONTINUED OPERATION
On May 28, 1999, the Company sold the business and assets of
BookCrafters USA, Inc., its hardcover and softcover book manufacturing
and distribution segment to The Sheridan Group. Accordingly, the
segment has been accounted for as a discontinued operation.
The Company assigned certain operating leases entered into by
Bookcrafters USA, Inc. prior to the sale. The Company guaranteed the
payment on these leases which expire between January 1, 2003 and January
1, 2004. At December 31, 1999, the aggregate amount of guaranteed lease
payments was $2,034,375.
In 1998, the Company recorded an estimated loss of $7,187,000 after tax
for the disposal of the assets of the segment. The loss was based on
the estimated proceeds from the disposal and to accrue for expected
operating results during the phase-out period.
F-9
<PAGE>
<PAGE>
In the first quarter of 1999, the Company recorded a loss of $1,513,000
after tax for the disposal of the segment. No adjustment was required
to the loss on disposal of the segment at the date of sale.
The following are the components of the net assets for discontinued
operations of BookCrafters USA, Inc.:
(in thousands) DECEMBER 31, 1998
Current net assets:
Accounts receivable $ 9,463
Inventory 2,483
Other assets 5
Accounts payable (3,730)
-------
Total net current assets 8,221
Long-term assets:
Property, plant and equipment, net of accumulated
depreciation of $20,719 6,682
Other long-term 97
-------
Total long-term assets 6,779
-------
Net assets of Discontinued Operation $15,000
=======
At December 31, 1998, assets are shown at their estimated net realizable
values and liabilities are shown at their face amounts.
Summarized income statement information for BookCrafters USA, Inc. is as
follows:
(in thousands) 1999 1998 1997
------- ------- -------
Net Sales $18,799 $49,707 $49,674
Operating Income (Loss) $ (888) $ 1,090 $ 1,687
5. CURTIS 1000 EUROPE GMBH
Effective May 12, 1998, the Company sold its investment in Curtis 1000
Europe GmbH, the Company's European envelope manufacturing joint
venture. The Company accounted for its investment using the equity
method. Proceeds from the sale were approximately $4,446,000, with an
additional tax credit of approximately $418,000 generated in connection
with the sale. The Company recorded a loss of approximately $1,849,000
before tax on the sale, which is included in miscellaneous-net other
income.
6. RESTRUCTURING AND OTHER CHARGES
During 1998, the Company conducted a review of a custom-designed
software system that was being developed by Curtis 1000 Inc., the
Company's printed office products subsidiary. After extensive review,
the Company discontinued the software development project, which
resulted in the Company recording a pre-tax charge of approximately
$5,155,000 to write off the Company's investment in the project.
In 1997, the Company recognized charges against income, which included
amounts for management changes and reorganization, estimated penalties
associated with a take or pay contract with the purchaser of the
Company's
F-10
<PAGE>
<PAGE>
former business forms manufacturing business, the cessation of
manufacturing at a Company facility and certain information systems
asset impairments. The before tax amount of such charges was $1,394,000
included in selling and administrative expenses, $3,990,000 included in
restructuring and other charges and $1,800,000 included in
miscellaneous-net other income. The charge to restructuring and other
charges consisted of severance and other employee related costs of
$1,569,000, lease termination and other miscellaneous cost of $100,000
and information systems and other fixed asset impairments of $2,321,000.
Of the $1,669,000 restructuring charge, cash expenditures of $299,000,
$1,156,000 and $109,000 were made against the accrual in 1999, 1998 and
1997, respectively. Severance costs related to 93 employees, primarily
production and administrative personnel located at the closed facility
and management employees at Curtis 1000. Of these, 7 employees'
employment terminated in 1997 and 86 employees' employment terminated in
1998. The information systems asset impairment charge was necessitated
by a realization by the Company that the planned benefits of the system
would not be achieved. The impairment of the other fixed assets was
caused by the decision to cease manufacturing at a Company facility.
The remaining book value of the assets was written off as the assets are
no longer used.
As a result of a 1996 Restructuring Plan and the 1996 sale of the assets
of the Company's former business forms manufacturing subsidiary, Vanier,
the Company sold certain real estate assets resulting in a loss of
$50,000 in 1999, a gain of $499,000 in 1998 and a gain of $2,909,000 in
1997 which are included in miscellaneous-net other income in the
accompanying Consolidated Statements of Income.
7. INVENTORIES
(in thousands) 1999 1998
------- -------
Raw materials $16,564 $16,740
Work in process 3,764 3,712
Finished goods 13,623 14,021
------- -------
33,951 34,473
Inventory obsolescence reserve (1,677) (2,429)
------- -------
Net inventory $32,274 $32,044
======= =======
8. LONG-TERM DEBT
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
------- -------
<S> <C> <C>
Senior notes, 9.92%, due 1999 $ 1,071
Senior notes, 5.77%, due 1997 to 2003 $27,429 34,286
Note payable to bank, variable at LIBOR plus 1.15%, 7.15% and 6.74% at December 31, 1999
and 1998, principal due to 2000. 95 324
Mortgage note, variable at 56% of bank's base rate plus .25%, not to exceed 15%, 4.75% at
December 31, 1998, principal due to 1999. - 500
Mortgage note, variable at 79.4% of prime rate not to exceed 11.75%, 6.06% at December 31,
1998, principal due to 1999 - 176
Industrial revenue bonds due 2031, variable rate 5.65% and 4.10% at December 31, 1999
and 1998 6,460 6,460
Promissory note, variable at LIBOR, 6.00% at December 31, 1999, principal due to 2000 1,016
Other - 32
------- -------
35,000 42,849
Less current maturities 7,969 8,833
------- -------
$27,031 $34,016
======= =======
</TABLE>
F-11
<PAGE>
<PAGE>
The Company has an unsecured committed revolving credit agreement (the
"Credit Agreement") with a bank, under which the Company may borrow up
to $50.0 million through April 22, 2002. The Credit Agreement provides
for borrowing at rates related to prime and Eurocurrency rates, and for
payment of commitment fees on the unused portion of the credit facility.
Currently, the Company has no outstanding borrowing under the Credit
Agreement. The Industrial Revenue Bond is supported by a letter of
credit issued pursuant to the Credit Agreement, which commensurately
reduces the balance available to the Company under the Credit Agreement.
The Credit Agreement provides for payment of fees of 2/10% per annum on
the amount of the letter of credit outstanding, which was $6.6 million
at December 31, 1999 and 1998.
At December 31, 1999, the Company had no assets assigned as collateral
to the Company's long-term debt obligations. The Company has agreed to
certain restrictive covenants during the terms of some of these
agreements. Under the most restrictive of the covenants, the Company
must maintain tangible net worth not less than approximately $95,000,000
plus 25% of net income earned after 1992 and must limit the amount of
Senior Funded Debt to not more than 40% of total capitalization. The
aggregate amounts of long-term debt maturing during the next five years
and thereafter are approximately: 2000 - $7,969,000; 2001 - $6,857,000;
2002 - $6,857,000; 2003 - $6,857,000; 2004 - $0; thereafter - $6,460,000.
Loans from life insurance companies aggregating approximately
$30,500,000 and $47,600,000 are secured by the cash values of the
underlying life insurance policies of $33,000,000 and $51,600,000 at
December 31, 1999 and 1998, respectively. Such loans have been netted
against the cash values. Interest is payable annually at rates ranging
from 8% to 13%.
The fair value of the Company's long-term debt is based on management's
estimate of current market prices for the same issues. Fair value is
estimated to be $34,215,000 at December 31, 1999 and $43,162,000 at
December 31, 1998.
9. INCOME TAXES
Deferred income taxes have been established for the effects of
differences in the bases of assets and liabilities for financial
reporting and income tax purposes.
The provision for income taxes is reconciled with the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income tax at Federal statutory rate $ 9,937 $ 6,451 $10,469
State income taxes net of Federal income tax benefit 474 325 1,502
Non-taxable life insurance proceeds and increase in cash value (646) (1,105) (1,527)
Loss associated with Curtis 1000 Europe GmbH - 709 -
Other 450 265 227
------- ------- -------
Total provision $10,215 $ 6,645 $10,671
======= ======= =======
</TABLE>
The income tax provision is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
(in thousands)
Continuing operations $10,757 $11,120 $10,040
Discontinued operation (542) (4,475) 631
------- ------- -------
$10,215 $ 6,645 $10,671
======= ======= =======
</TABLE>
F-12
<PAGE>
<PAGE>
Components of the net deferred income tax asset at December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
------- -------
<S> <C> <C>
Deferred Income Tax Assets
Postretirement and postemployment benefits $13,626 $14,815
State net operating loss carryforward, net of Federal benefit 3,880 1,577
Accrued severance 932 728
Accrued vacation 74 1,424
Allowance for bad debts 833 537
Capital loss carryforward 938 -
Other 1,842 3,580
------- -------
Gross deferred tax asset 22,125 22,661
Valuation allowance (3,785) (1,572)
------- -------
18,340 21,089
Deferred Income Tax Liabilities
Property, plant and equipment 7,161 5,091
VEBA trust payment 651 407
Federal effect of deferred state taxes 686 867
------- -------
8,498 6,365
------- -------
Net Deferred Income Tax Asset $ 9,842 $14,724
======= =======
</TABLE>
During 1999, the Company increased its deferred tax valuation allowance.
Management believes it is more likely than not that the Company will be
unable to utilize the net operating loss generated from the disposition
of BookCrafters USA, Inc.; this resulted in a $2,179,000 increase in the
valuation allowance. Second, the Company's state tax planning
initiatives, while reducing expected future taxes in aggregate, make it
more likely than not that the Company will not be able to fully realize
the benefit of certain state net operating loss carryforwards; this
resulted in a $34,000 increase in the valuation allowance. Management
believes it is more likely than not that future taxable income will be
sufficient to realize fully the net deferred tax asset at December 31,
1999.
10. EMPLOYEE RETIREMENT PLANS
The Company has profit sharing and other retirement plans covering its
employees. The Company's contributions, which are discretionary, were
approximately $1,474,000 in 1999, $3,358,000 in 1998 and $2,667,000 in
1997.
Previously the Company entered into agreements with certain former and
current directors and key officers of the Company and its subsidiaries
which provide for nonfunded supplemental retirement benefits. No
agreements have been entered into since 1995. The Company has made
current provisions for future payments due under these agreements in
1999, 1998 and 1997 of $303,000, $2,493,000 and $1,479,000,
respectively. Included in the results for 1999 was a reduction of
expense of $1,146,000 resulting from downward revaluation of the
liability as a result of increases in bond market interest rates which
affect valuation of the liability. Included in the results for 1998 was
an increase in expense of approximately $1,210,000 resulting from upward
revaluation of the liability as a result of decreases in interest rates.
In January 1997, the Company entered into a springing note payable
whereby upon a change in control of the Company, amounts sufficient to
discharge the Company's obligations under these plans becomes due.
F-13
<PAGE>
<PAGE>
11. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits for
eligible retired employees. Substantially all of the Company's
employees may become eligible for benefits if, after ten or more years
of service, they reach normal retirement age while working for the
Company. The health care plan is contributory and is adjusted
periodically based on actual experience while the life insurance plan is
noncontributory. Neither plan is funded. The Company accounts for
these arrangements in accordance with Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions".
The following table presents a reconciliation of the Company's benefit
obligation:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Benefit obligation at beginning of year $15,621 $16,424 $16,849
Service Cost 296 289 308
Interest Cost 535 568 621
Net amortization (447) (503) (471)
Benefits paid (1,239) (1,157) (883)
Curtailment gain (2,052) - -
------- ------- -------
Benefit obligation at end of year $12,714 $15,621 $16,424
======= ======= =======
</TABLE>
The following table presents a reconciliation of the plan's funded
status at December 31:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION:
Retired employees $ 3,560 $ 4,854 $ 4,884
Fully eligible active employees 173 423 351
Other active employees 1,327 3,239 3,585
------- ------- -------
5,060 8,516 8,820
------- ------- -------
Unrecognized prior service cost reduction 7,404 7,153 7,194
Unrecognized net gain (loss) 250 (48) 410
------- ------- -------
Postretirement benefits $12,714 $15,621 $16,424
======= ======= =======
NET PERIODIC BENEFIT COST:
Service cost $ 296 $ 289 $ 308
Interest cost 535 568 621
Net amortization (447) (503) (471)
------- ------- -------
$ 384 $ 354 $ 458
======= ======= =======
</TABLE>
The Company made a plan modification during 1996 which became effective
January 1, 1997 that increased its obligations for prior service costs
by approximately $472,000. Such amounts are being amortized over the
remaining active service periods of employees.
The introduction of the Medicare + Choice option for retiree health care
as of January 1, 1998 resulted in a decrease of $460,000 in the
accumulated postretirement benefit obligation ("APBO"), and a
corresponding increase in unrecognized prior service cost.
The disposition of BookCrafters USA, Inc., recognized as of June 1,
1999, resulted in a one-time curtailment gain of $2,052,000. This
results from the reduction in the plan's APBO and the immediate
recognition of a portion of the plan's unrecognized prior service cost.
F-14
<PAGE>
<PAGE>
Certain reductions to assumed future increases in Company subsidies to
the plan, recognized as of December 31, 1999, resulted in a decrease in
APBO of $1,953,000. This decrease in APBO is accounted for as a prior
service credit and recognized by level amortization over the expected
time to full eligibility age for active employees.
The increase in discount rate from 6.75% to 7.75% resulted in a
reduction of $814,000 in the APBO and a corresponding increase in
unrecognized actuarial gain.
The weighted average annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) is 7.5% for
1999, decreasing 1.0% each year until 2001 when the trend rate will
become level at 5.5%. The assumed health care cost trend rate has a
significant effect on the amounts reported. A 1% point change in the
assumed health care cost trend rate would have had the following effects
on the 1999 service and interest cost and the accumulated postretirement
benefit obligation at December 31, 1999.
One Percentage One Percentage
Point Increase Point Decrease
-------------- --------------
Effect on service and interest cost $ 1,098 $ (996)
Effect on ABPO $11,129 $(10,340)
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% at December 31, 1999, 6.75%
at December 31, 1998 and 7.25% at December 31, 1997.
12. COMMITMENTS AND CONTINGENCIES
Rental expense from continuing operations under operating leases was
approximately $5,817,000 in 1999, $4,126,000 in 1998 and $3,713,000 in
1997. Minimum rental commitments from continuing operations under non-
cancelable leases other than capital leases are approximately: 2000 -
$5,713,000; 2001 - $5,329,000; 2002 - $3,663,000; 2003 - $184,000 and
$32,000 thereafter.
The Company has committed to purchase materials and miscellaneous plant
and equipment. As of December 31, 1999, the Company has signed
contracts requiring remaining future payments of $3,204,000 once the
material and equipment is delivered and installed according to the terms
of the contracts.
In connection with the disposition of BookCrafters USA, Inc., the
Company assigned certain operating leases entered into by BookCrafters
USA, Inc. prior to the sale. The Company guaranteed the payment on
these leases which expire between January 1, 2003 and January 1, 2004.
At December 31, 1999, the aggregate amount of guaranteed lease payments
was $2,034,375.
In connection with the Vanier Sale, Vanier agreed to indemnify the
purchaser against certain potential liabilities and losses, including
environmental. The Company has agreed to guarantee Vanier's
indemnification obligations and certain other obligations entered into
in connection with the Vanier Sale. Based on information currently
available, management does not expect the resolution of the
contingencies related to the Vanier Sale to have a material effect on
its financial statements.
In the opinion of management, no litigation or claims are pending
against the Company which are likely to have an adverse material effect
on its financial statements.
F-15
<PAGE>
<PAGE>
13. STOCK COMPENSATION PLANS
The Company currently has three stock compensation plans: the 1999
Incentive Compensation Plan, which was adopted at the 1999 Annual
Meeting of Shareholders held on May 5, 1999 (the "1999 Plan"), the 1993
Director's Stock Incentive Plan, which was adopted in 1994 (the "1993
Plan") and the 1991 Stock Incentive Plan, which was adopted in 1991 (the
"1991 Plan").
1999 Plan
- ---------
Future stock-based compensation will be made pursuant to the 1999 Plan,
which replaced the 1993 Plan and the 1991 Plan. Under the 1999 Plan,
options may be granted at fair value to key employees. Twenty-five
percent of each grant becomes exercisable in each succeeding year and
the maximum term of the options is ten years. The weighted average fair
value at date of grant for options granted under the 1999 Plan during
1999 was $2.67. The 1999 Plan also provides for performance share
awards. The Company issued 171,000 shares of restricted stock in 1999
pursuant to the 1999 Plan that may vest in whole or in part, or may be
forfeited, based on the Company's performance over the next three years.
As a result of the resignation of the Company's Chairman and Chief
Executive Officer in September 1999, 101,744 of the 131,000 shares
awarded to him with a fair value at date of grant of $1,981,000, were
forfeited. The remaining 29,256 shares vested as of December 31, 1999
resulting in $585,000 of compensation expense recorded in selling and
administrative expenses in the accompanying Condensed Consolidated
Statements of Income. The fair value at date of grant and December 31,
1999 of the restricted shares still outstanding at December 31, 1999 was
$605,000 and $468,000, respectively, which is recorded as unearned
compensation in the accompanying December 31, 1999 Condensed
Consolidated Balance Sheet. The Company also issued 100 shares of
restricted stock pursuant to the 1999 Plan to each nonemployee director,
for a total of 1,100 shares, resulting in $16,475 of compensation
expense recorded in selling and administrative expenses in the
accompanying Condensed Consolidated Statements of Income. The weighted
average fair market value per share at the date of grant of shares
issued in 1999 was $15.12. The Company has reserved 1,473,160 shares of
Common Stock for issuance under the 1999 Plan at December 31, 1999.
1993 Plan
- ---------
The 1993 Plan is a nonqualified plan that prior to January 1, 1998
provided stock options to directors who elected to forego all or a
portion of the director's retainer fee for the following year in
exchange for an option to purchase Common Stock. The number of options
to be issued was determined by dividing the foregone director's fee by
one-half of the fair market value of the Common Stock on the date of
grant. The exercise price was equal to one-half of the fair market
value of the Common Stock on the date of grant for options granted and
these options are fully vested at the date of grant. Effective January
1, 1998 the Board of Directors and shareholders adopted an amendment to
the 1993 Plan which eliminated the ability of directors to receive
options in lieu of fees, permits the committee administering the plan to
grant options at its discretion and made other operative changes.
Options granted on or after January 1, 1998 are granted at a price equal
to the fair market value on the date of grant. One-third of each grant
becomes exercisable in each succeeding year and the maximum term of the
options is ten years. The weighted average fair value at date of grant
for options granted under the 1993 Plan during 1998 was $5.50. No
options were issued under the 1993 Plan during 1999.
The 1993 Plan also provides for restricted stock awards. In general,
each director was issued 300 shares of Common Stock upon adoption of the
plan and new directors are issued 200 shares upon election. Additional
awards of 100 shares will be made to each director annually, but no
director will receive more than 2,000 shares of restricted stock. The
Company issued 200 shares of restricted stock in 1999 and 1,300 shares
of restricted stock in 1998. The weighted average fair market value per
share at the date of grant of shares issued in 1999 and 1998 was $21.44
and $22.07, respectively. The Company had issued 6,400 and 6,200 shares
of restricted stock pursuant to the 1993 plan at December 31, 1999 and
1998, respectively. The Company had reserved 410,270 shares of Common
Stock for issuance under the 1993 Plan at December 31, 1998.
F-16
<PAGE>
<PAGE>
1991 Plan
- ---------
The 1991 Plan is a nonqualified plan which replaced the expiring 1981
Stock Option Plan ("1981 Plan"). Under both the 1991 and 1981 Plans,
options could be granted at fair market value to key employees. Twenty-
five percent of each grant became exercisable in each succeeding year
and the maximum term of the options is ten years. The weighted average
fair value at date of grant for options granted under the 1991 Plan
during 1999 and 1998 was $2.92 and $5.30, respectively. The weighted
average fair value at date of grant for reload options granted under the
1981 Plan during 1998 was $3.89. Reload grants carry the same vesting
schedule and term as the original grant. The 1991 Plan provides for
restricted stock awards. The company issued 5,000 shares of restricted
stock in 1999 and 11,142 shares of restricted stock in 1998. The
weighted average fair market value per share at the date of grant of
shares issued during 1999 and 1998 was $20.00 and $22.44, respectively.
The Board of Directors may grant options that include a stock
appreciation feature under which employees may elect to receive cash in
lieu of Common Stock for up to 25% of the option exercised. During 1999
and 1998, no such options were granted. The Company had reserved
1,267,406 shares of Common Stock for issuance under the 1991 Plan at
December 31, 1998.
Plans' Activity
- ---------------
The following table summarizes activity adjusted for stock splits in the
Company's stock option plans for each of the last three years:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ---------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- --------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 1,066,402 $20.09 741,710 $18.93 505,647 $17.61
Issued at fair value 327,000 $17.33 466,743 $21.63 310,612 $20.49
Issued at less than fair value - - - - 6,385 $11.75
Exercised (27,216) $16.09 (39,823) $15.14 (66,084) $15.61
Cancelled (175,422) $20.19 (102,228) $20.60 (14,850) $18.35
--------- --------- -------
Outstanding at December 31 1,190,764 $19.41 1,066,402 $20.09 741,710 $18.93
========= ========= =======
Exercisable at December 31 721,109 $19.01 391,957 $18.52 348,934 $17.82
========= ========= =======
</TABLE>
The following table summarizes information about stock options
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Average Weighted Weighted
Range of Number Remaining Average Exercise Number Average
Exercise Prices Outstanding Contractual Life Price Exercisable Exercisable Price
<S> <C> <C> <C> <C> <C>
$ 7.33 - $18.00 376,472 8.18 $16.36 308,472 $16.68
$18.06 - $19.81 331,862 7.01 $19.38 190,305 $19.29
$20.25 - $21.00 64,994 6.60 $20.73 47,457 $20.75
$21.56 - $21.56 290,300 8.89 $21.56 79,075 $21.56
$22.25 - $25.00 127,136 7.27 $22.92 95,800 $22.95
--------- -------
$ 7.33 - $25.00 1,190,764 7.84 $19.41 721,109 $19.01
========= =======
</TABLE>
F-17
<PAGE>
<PAGE>
Compensation cost charged to operations was $605,883 in 1999, $278,700
in 1998 and $98,500 in 1997. Had compensation cost been determined on
the basis of fair value pursuant to SFAS 123, net income and earnings
per share would have been reduced as follows:
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net Income
As Reported $18,176 $11,787 $19,242
Pro forma $16,956 $11,066 $18,958
Basic Earnings Per Share
As reported $ 1.21 $ 0.74 $ 1.17
Pro forma $ 1.13 $ 0.69 $ 1.15
Diluted Earnings Per Share
As reported $ 1.21 $ 0.74 $ 1.16
Pro Forma $ 1.13 $ 0.69 $ 1.15
</TABLE>
The fair value of options at date of grant was estimated using
the Black-Scholes Model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Expected life (years) 1.58 4.97 3.56
Interest rate 5.83% 4.57% 5.83%
Volatility 38.33% 33.00% 30.00%
Dividend yield 5.84% 3.69% 3.67%
</TABLE>
14. STOCKHOLDERS' EQUITY
The Company has authorized 500,000 shares of Preferred Stock without par
value. No shares have been issued.
On May 5, 1999, the Board of Directors adopted a Rights Plan which will
expire November 6, 2009. The Company's former Rights Plan adopted
October 25, 1989 expired November 6, 1999. Under the new rights plan,
shareholders of record on May 17, 1999, and shareholders who acquire the
Company's common stock after that date until the distribution date will
receive rights to purchase six shares of the Company's common stock
(subject to adjustment) at a price equal to 20% of the then current
market price. In the event there is an insufficient number of
authorized but unissued shares of the Company to honor all rights, the
Board of Directors may substitute alternative securities or cash. The
rights will be exercisable if a person or group acquires beneficial
ownership of 30% or more of the Company's outstanding common stock, or
begins a tender or exchange offer for 30% or more of the Company's
outstanding common stock. In addition, the rights will be exercisable
if an "adverse person", as determined by the Board of Directors,
acquires a beneficial ownership of 10% or more of the Company's
outstanding common stock. The Board of Directors may redeem the rights
for $0.01 per right at any time up to 20 days after the time they become
exercisable. Until a triggering event, the rights attach to and trade
with the shares of the Company's common stock. No separate rights
certificate will be issued until an event triggering the exercise of the
rights occur.
On January 12, 2000, the Board of Directors approved an amendment to the
Rights Plan by the Company to clarify that a tender offer approved by a
majority of the Board of Directors would not qualify as establishing a
triggering event.
F-18
<PAGE>
<PAGE>
Pursuant to the Agreement and Plan of Merger among the Company, Mail-
Well, Inc. and Sherman Acquisition Corp. dated as of January 13, 2000
("the Agreement") and discussed in Note 2, the Company agreed to take
all action necessary to approve the Stock Offer, the Merger, and all
other transactions contemplated by the Agreement and represented and
warranted that upon taking of such action none of the Stock Offer, the
Merger, or any other transactions contemplated by the Agreement will
result in any of the rights becoming exercisable.
15. BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Net External Net Internal Depreciation & Capital Identifiable Operating
(in thousands) Sales Sales Amortization Expenditures Assets Profit
------------ ------------ -------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Extrusion Coating & Laminating $140,049 $ 1,813 $ 4,904 $ 2,090 $ 82,838 $12,276
Soft Packaging 95,144 5,792 2,488 4,724 41,452 7,716
Labels 63,420 3,606 4,109 4,871 39,170 7,060
-------- ------- ------- ------- -------- -------
Total Specialty Packaging Business 298,613 11,211 11,501 11,685 163,460 27,052
Printed Office Products 177,320 - 3,429 4,856 54,626 8,630
Corporate - - 465 66 57,653 (3,441)
-------- ------- ------- ------- -------- -------
Total $475,933 $11,211 $15,395 $16,607 $275,739 $32,241
======== ======= ======= ======= ======== =======
YEAR ENDED DECEMBER 31, 1998
Extrusion Coating & Laminating $124,167 $ 799 $ 3,326 $ 8,198 $ 65,420 $13,817
Soft Packaging 88,553 6,443 2,247 2,159 36,318 5,568
Labels 59,973 4,452 3,368 3,850 37,752 10,272
-------- ------- ------- ------- -------- -------
Total Specialty Packaging Business 272,693 11,694 8,941 14,207 139,490 29,657
Printed Office Products 188,577 14 3,148 3,921 48,419 7,198
Corporate - - 196 2,305 113,335 (4,704)
-------- ------- ------- ------- -------- -------
Total $461,270 $11,708 $12,285 $20,433 $301,244 $32,151
======== ======= ======= ======= ======== =======
YEAR ENDED DECEMBER 31, 1997
- ----------------------------
Extrusion Coating & Laminating $118,738 $ 1,318 $ 2,977 $ 7,301 $ 60,032 $13,513
Soft Packaging 83,700 8,267 2,335 1,308 33,967 3,810
Labels 55,657 6,237 3,296 2,533 36,873 9,844
-------- ------- ------- ------- -------- -------
Total Specialty Packaging Business 258,095 15,822 8,608 11,142 130,872 27,167
Printed Office Products 195,220 2 2,815 5,884 68,310 8,475
Corporate - - 274 58 131,312 (4,870)
-------- ------- ------- ------- -------- -------
Total $453,315 $15,824 $11,697 $17,084 $330,494 $30,772
======== ======= ======= ======= ======== =======
</TABLE>
The Company operates two businesses: specialty packaging and printed
office products. The Company's specialty packaging business is
comprised of three segments: the extrusion of polyethylene and other
materials onto papers and nonwovens used in packaging and other
products, the manufacture of soft packages including Tyvek(R) mailers, and
the manufacture of labels. The Company's printed office products
business is comprised of a single segment which supplies custom-printed
envelopes and labels, digital document services and business forms.
In all material respects, the Company accounts for intercompany sales
and transfers as if the sales or transfers were to third parties.
Operating profit for each segment is adjusted income before interest and
taxes, which is income before interest and taxes adjusted to include, in
lieu of corporate expense allocations, a capital charge equal to 2.5% of
the invested capital used in the business segment, which has been netted
with Corporate.
F-19
<PAGE>
<PAGE>
Identifiable assets are those assets used in each segment's operation.
Corporate assets consist of cash and cash equivalents, certain non-
current assets used by multiple segments, including enterprise wide
software, other current and non-current assets not used by segments, and
net assets of discontinued operation.
Following is a reconciliation of operating profit to Income before
Income Taxes:
(in thousands) 1999 1998 1997
------- ------- -------
Operating profit $32,241 $32,151 $30,772
Interest Expense (4,026) (6,950) (6,529)
Interest Income 2,231 4,256 4,200
------- ------- -------
Income before Income Taxes $30,446 $29,457 $28,443
======= ======= =======
ENTERPRISE-WIDE INFORMATION
The Company's revenue was attributed to the following geographic areas:
(in thousands) 1999 1998 1997
-------- -------- --------
Domestic $464,501 $453,948 $445,914
Foreign 11,432 7,322 7,401
-------- -------- --------
Total $475,933 $461,270 $453,315
======== ======== ========
All of the Company's assets are located within the continental United
States.
No customer accounted for greater than 10% of the Company's revenues.
F-20
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No.'s 333-60595, 333-59201, and 333-53679 of Mail-Well, Inc. on Forms
S-3 and Registration Statement No.'s 333-26743 and 333-61467 of Mail-Well,
Inc. on Forms S-8 of our report dated February 10, 2000 relating to the
consolidated financial statements of American Business Products, Inc. as
of December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999 appearing in this Current Report on Form
8-K of Mail-Well, Inc.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
May 4, 2000
