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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 September 30, 2000
Commission file number 1-12551
MAIL-WELL, INC.
(Exact name of Registrant as specified in its charter.)
COLORADO 84-1250533
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
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 November 6, 2000, the Registrant had 47,663,879 shares of
Common Stock, $0.01 par value, outstanding.
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<TABLE>
MAIL-WELL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<CAPTION>
-----------------------------------------------------------------------------------------
PAGE
----
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 27
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders 28
Item 6. Exhibits and Reports on Form 8-K 28
Signature Page 31
</TABLE>
2
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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>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 506 $ 3,618
Trade receivables, net 236,935 85,044
Investment in accounts receivable securitization 64,756 54,396
Accounts receivable -- other 18,927 20,764
Inventories, net 175,983 144,756
Other current assets 48,578 25,551
---------- ----------
Total current assets 545,685 334,129
PROPERTY, PLANT AND EQUIPMENT, NET 581,028 532,156
GOODWILL, NET 565,217 453,483
OTHER INTANGIBLES, NET 53,502 4,770
OTHER ASSETS, NET 46,516 19,503
---------- ----------
TOTAL $1,791,948 $1,344,041
========== ==========
CURRENT LIABILITIES
Accounts payable $ 160,424 $ 122,740
Accrued compensation and vacation 64,596 50,042
Other current liabilities 93,332 52,999
Current portion of long-term debt and capital leases 43,312 13,889
---------- ----------
Total current liabilities 361,664 239,670
LONG-TERM DEBT AND CAPITAL LEASES 919,847 653,090
DEFERRED INCOME TAXES 85,442 64,112
OTHER LONG-TERM LIABILITIES 25,604 8,351
---------- ----------
Total liabilities 1,392,557 965,223
MINORITY INTEREST IN NON VOTING STOCK OF SUBSIDIARY - 3,508
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,
48,573,879 and 49,215,078 shares issued and outstanding,
respectively 486 492
Paid-in capital 215,241 219,795
Retained earnings 190,972 155,222
Accumulated other comprehensive income (loss) (7,308) (199)
---------- ----------
Total shareholders' equity 399,391 375,310
---------- ----------
TOTAL $1,791,948 $1,344,041
========== ==========
See notes to unaudited consolidated financial statements.
</TABLE>
3
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<TABLE>
MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $615,556 $492,787 $1,750,100 $1,372,250
COST OF SALES 479,866 380,132 1,347,250 1,054,654
-------- -------- ---------- ----------
GROSS PROFIT 135,690 112,655 402,850 317,596
OTHER OPERATING COSTS
Selling, administrative and other 100,799 68,198 281,561 196,594
Restructuring costs 1,079 - 1,079 -
-------- -------- ---------- ----------
OPERATING INCOME 33,812 44,457 120,210 121,002
OTHER (INCOME) EXPENSE
Interest expense 22,677 14,729 65,613 41,545
Other (income) expense 302 64 (27) (640)
-------- -------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 10,833 29,664 54,624 80,097
PROVISION FOR INCOME TAXES 4,110 12,163 21,379 32,840
-------- -------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 6,723 17,501 33,245 47,257
INCOME FROM DISCONTINUED OPERATIONS
(LESS INCOME TAXES OF $663) - - 1,058 -
-------- -------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 6,723 17,501 34,303 47,257
EXTRAORDINARY ITEM (LESS INCOME TAXES OF $907) - - 1,447 -
-------- -------- ---------- ----------
NET INCOME $ 6,723 $ 17,501 $ 35,750 $ 47,257
======== ======== ========== ==========
EARNINGS PER SHARE - BASIC
CONTINUING OPERATIONS $ 0.14 $ 0.36 $ 0.68 $ 0.97
DISCONTINUED OPERATIONS - - 0.02 -
EXTRAORDINARY ITEM - - 0.03 -
EARNINGS PER SHARE - BASIC $ 0.14 $ 0.36 $ 0.73 $ 0.97
EARNINGS PER SHARE - DILUTED
CONTINUING OPERATIONS $ 0.14 $ 0.32 $ 0.65 $ 0.88
DISCONTINUED OPERATIONS - - 0.02 -
EXTRAORDINARY ITEM - - 0.02 -
EARNINGS PER SHARE - DILUTED $ 0.14 $ 0.32 $ 0.69 $ 0.88
WEIGHTED AVERAGE SHARES - BASIC 48,993 48,972 49,165 48,923
WEIGHTED AVERAGE SHARES - DILUTED 49,314 58,401 57,163 58,323
See notes to unaudited consolidated financial statements.
</TABLE>
4
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<TABLE>
MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30,
-------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 35,750 $ 47,257
Adjustments to reconcile net income to cash provided by operations
Depreciation and amortization 64,760 42,769
Extraordinary item pre-tax (2,354) -
Deferred income taxes (4,431) 9,195
Other (1,117) (967)
Changes in operating assets and liabilities, net of effects
of acquired businesses:
Receivables (30,410) (42,028)
Inventories (3,919) (11,417)
Accounts payable 11,390 17,392
All other assets and other liabilities 10,029 25,703
---------- ---------
Net cash provided by operating activities 79,698 87,904
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs, net of cash acquired (345,577) (193,372)
Proceeds from the sale of discontinued operations 110,646 -
Capital expenditures (56,992) (62,850)
Investment in equity securities, net (11,993) -
Other investing activities 29,346 2,854
---------- ---------
Net cash used in investing activities (274,570) (253,688)
CASH FLOWS FROM FINANCING ACTIVITIES
Changes due to accounts receivable securitization, net (73,500) 77,400
Proceeds from common stock issuance 255 672
Proceeds from long-term debt 1,055,989 322,040
Repayments of long-term debt and capital leases (767,675) (229,550)
Debt issuance costs (14,913) -
Treasury stock purchase/stock redemption (4,815) -
Other financing activities (3,500) (1,433)
---------- ---------
Net cash provided by financing activities 191,841 169,129
EFFECT OF EXCHANGE RATE CHANGES ON CASH (81) 107
---------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,112) 3,772
BALANCE AT BEGINNING OF PERIOD 3,618 1,375
---------- ---------
BALANCE AT END OF PERIOD $ 506 $ 5,147
========== =========
See notes to unaudited consolidated financial statements.
</TABLE>
5
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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 a market leader in
four highly fragmented segments of the printing industry. The
Company is a leading commercial printer in the United States and
manufactures and prints envelopes in the United States and Canada.
The Company is also a printer of office products for the distributor
market and 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. Mail-Well I
Corporation ("MWI"), a wholly-owned subsidiary of Mail-Well, Inc.,
conducts most of the business of Mail-Well, Inc. MWI, together with
its subsidiaries, is the owner of the Company's operating assets and
the borrower of the debt (exclusive of the Convertible Subordinated
Notes). 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, 2000.
INVENTORIES -- Detail of inventories, in thousands:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Raw materials $ 62,542 $ 55,896
Work in process 40,447 32,020
Finished goods 78,879 61,620
Provision for obsolescence, loss and other (5,885) (4,780)
-------- --------
$175,983 $144,756
======== ========
</TABLE>
SHAREHOLDERS' EQUITY -- The change in Retained Earnings is net income.
See "Other Comprehensive Income" for an explanation of the change in
those accounts. See below for the change in Common Stock, Paid-in-
Capital and Outstanding shares.
<TABLE>
<CAPTION>
COMMON STOCK PAID-IN-CAPITAL OUTSTANDING SHARES
------------ --------------- ------------------
<S> <C> <C> <C>
(in thousands)
Balance at December 31, 1999 $492 $219,795 49,215,078
Exercise of stock options 1 254 59,901
Stock purchases (7) (4,808) (701,100)
---- -------- ----------
Balance at September 30, 2000 $486 $215,241 48,573,879
==== ======== ==========
</TABLE>
In July 2000, the Board of Directors approved the purchase on
the open market of up to $10 million of its common stock at
prevailing market levels, at such time and on such terms as the
Company is permitted under the rules and regulations of the
Securities Exchange Commission and New York Stock Exchange.
6
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OTHER COMPREHENSIVE INCOME -- Other comprehensive income includes
changes in shareholders' equity that do not result directly from
transactions with shareholders. A summary of comprehensive income
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
(in thousands)
Net income $ 6,723 $17,501 $35,750 $47,257
Currency translation adjustments, net (2,543) (312) (7,035) 6,919
Unrealized gain on investments, net (19) 178 (74) 396
------- ------- ------- -------
Comprehensive income $ 4,161 $17,367 $28,641 $54,572
======= ======= ======= =======
</TABLE>
EARNINGS PER SHARE -- The unallocated shares issued under the
Employee Stock Ownership Plan are excluded from both the basic and
diluted earnings per share calculations. The effect of convertible
subordinated notes, which could potentially dilute earnings per
share, was not included in the computation for the quarter ended
September 30, 2000 because the result would have been antidilutive.
<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
EARNINGS PER SHARE - BASIC
Income available to common shareholders $ 6,723 48,993 $0.14
=====
EFFECT OF DILUTIVE SECURITIES
Stock options - 321
------- ------
EARNINGS PER SHARE - DILUTED
Income available to common shareholders including
assumed conversions $ 6,723 49,314 $0.14
======= ====== =====
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
EARNINGS PER SHARE - BASIC
Income available to common shareholders $17,501 48,972 $0.36
=====
EFFECT OF DILUTIVE SECURITIES
Stock options - 1,206
Convertible Subordinated Notes 1,314 8,003
Other - 220
------- ------
EARNINGS PER SHARE - DILUTED
Income available to common shareholders including
assumed conversions $18,815 58,401 $0.32
======= ====== =====
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
EARNINGS PER SHARE - BASIC
Income available to common shareholders $35,750 49,165 $0.73
=====
EFFECT OF DILUTIVE SECURITIES
Stock options - 459
Convertible Subordinated Notes 3,737 7,508
Other - 31
------- ------
EARNINGS PER SHARE - DILUTED
Income available to common shareholders including
assumed conversions $39,487 57,163 $0.69
======= ====== =====
7
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FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
EARNINGS PER SHARE - BASIC
Income available to common shareholders $47,257 48,923 $0.97
=====
EFFECT OF DILUTIVE SECURITIES
Stock options - 1,177
Convertible Subordinated Notes 3,940 8,003
Other - 220
------- ------
EARNINGS PER SHARE - DILUTED
Income available to common shareholders including
assumed conversions $51,197 58,323 $0.88
======= ====== =====
</TABLE>
RECLASSIFICATION -- Certain amounts in the 1999 financial
statements have been reclassified to conform to the 2000
presentation.
2. ACQUISITIONS
On January 28, 2000, the Company acquired Braceland Brothers,
Inc., a commercial printing company located in Philadelphia,
Pennsylvania, with approximate annual sales of $30.3 million.
In February 2000, the Company acquired 13,450,588 shares (or 91%
outstanding) of the common stock of Atlanta-based American Business
Products ("ABP") for $20 per share in a cash tender offer. In the
second step of the acquisition, ABP merged with a wholly owned
subsidiary of the Company. The total value of the transaction,
including the assumption of debt, was approximately $333.6 million.
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 fully diluted earnings per share
from continuing operations of $19.7 million and $1.31, respectively.
In July 2000, the company signed a letter of intent to sell
Jen-Coat, its extrusion coating and laminating segment. The
transaction was consummated on September 30, 2000. Net proceeds to
the company are expected to be approximately $100 million (net of
taxes due and a note receivable from the buyer of $3 million) and
were used to reduce debt. The operating results of this operation
are reported as a discontinued operation in the consolidated
statements of operations for the three and nine-months ended
September 30, 2000.
On May 24, 2000, the Company acquired Craftsman Litho, Inc., a
commercial printing company located in Waterbury, Connecticut, with
approximate annual sales of $12.8 million.
On June 5, 2000, the Company acquired Strathmore Press, Inc., a
commercial printing company located in Cherry Hills, New Jersey, with
approximate annual sales of $15.0 million.
On July 25, 2000, the Company acquired CML Industries Ltd., a
supplier of envelopes and converted paper products located in Ontario
and Quebec, Canada, with approximate annual sales of $29.7 million.
These acquisitions have been accounted for as purchases.
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 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 for
certain acquisitions have not been finalized. The amount of goodwill
could be adjusted once the purchase price allocation is completed.
8
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The table below presents the results of operations for the
three and nine-months ended September 30, 2000 and 1999 giving effect
to the acquisition of ABP and the $800 million senior secured credit
facility (See Note 3) as if they had occurred on January 1, 2000 and
January 1, 1999, respectively. The table includes Jen-Coat as a
discontinued operation (See Note 2 for further information).
<TABLE>
<CAPTION>
(in thousands, except per share data) Three Months ended Nine Months ended
------------------ -----------------
September 30 September 30
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $615,556 $574,944 $1,791,652 $1,618,578
Income from continuing operations $ 6,723 $ 18,355 $ 32,882 $ 49,765
Net income $ 6,723 $ 19,018 $ 35,920 $ 51,704
Income from continuing operations per share:
Basic $ 0.14 $ 0.38 $ 0.67 $ 1.02
Diluted $ 0.14 $ 0.34 $ 0.62 $ 0.90
Net income per share:
Basic $ 0.14 $ 0.39 $ 0.73 $ 1.06
Diluted $ 0.14 $ 0.35 $ 0.67 $ 0.93
</TABLE>
3. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
INTEREST RATE AT
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ ------------------ -----------------
<S> <C> <C> <C>
Bank Borrowings:
Unsecured loan, due June 9, 2003 6.88% $ 18,368 $ 21,876
Unsecured revolving loan facility, due
March 31, 2003 - 172,000
Unsecured revolving loan facility, due
July 31, 2000 6.43% 4,467 242
Secured revolving line of credit, due
February 22, 2006 8.66% 20,000 -
Secured Tranche A term loan, due
February 22, 2006 8.77% 242,628 -
Secured Tranche B term loan, due
February 22, 2007 9.19% 210,368 -
Senior Subordinated Notes, due 2008 8.75% 300,000 300,000
Convertible Subordinated Notes, due 2002 5.00% 139,063 152,050
Other Various 28,265 20,811
-------- --------
963,159 666,979
Less current maturities (43,312) (13,889)
-------- --------
Long-term debt and capital leases $919,847 $653,090
======== ========
</TABLE>
On February 18, 2000, the Company entered into a $800 million
senior secured credit facility (the "New Facility"). The proceeds
were used to finance the acquisition of ABP, pay related costs and
expenses, refinance the unsecured revolving loan facilities, and
reduce the amounts drawn under the accounts receivable securitization
(see Note 5), with the remainder to provide funds for general
corporate purposes. The availability under the unsecured uncommitted
revolving loan facility, due July 31, 2001, was reduced from $20
million to $10 million. The unsecured revolving loan facility, due
March 31, 2003 was terminated.
The New Facility consists of a $250 million revolving line of
credit, a $300 million Tranche A term loan and a $250 million Tranche B
term loan. The Company is required to repay $25 million of principal in
the first year of the
9
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Tranche A term loan, with increases of $10 million a year until a $75
million payment in the sixth year. The Company is required to pay
$2.5 million per year on the Tranche B term loan, with a balloon
payment in 2007 of $233 million. Any optional prepayments of
principal must be applied proportionately among the Tranche A and B
term loans. The revolving line may be paid down at any time at the
option of the Company.
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 for the accounts receivable sold
under the securitization program and certain property and equipment
under lease obligations.
In 2000, the Company wrote off deferred financing costs of
$635,000 (net of $244,000 of income tax benefits) capitalized in
connection with the bank debt which was repaid in February, 2000. The
write-off is shown as an extraordinary item in the statement of
operations. Also, in March 2000, the Company repurchased $12,987,000
of the outstanding Convertible Subordinated Notes at a discount and
recorded a gain of $2,989,000 (net of $1,151,000 of income tax
expense), which is shown as an extraordinary item in the statement of
operations.
4. RESTRUCTURING CHARGES
In November 1998, the Company committed to implement a
restructuring program affecting the Envelope and Commercial Printing
segments and recorded a pre-tax provision of $15,961,000, of which
$11,699,000 represented 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 was
generally determined based on recent comparable sales and independent
quotes from the used equipment market. The remaining $4,262,000 was
for severance, other termination benefits and property exit costs,
including noncancelable operating leases. These charges were 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 $173,000 and $1,171,000 in expenses for
the three months and nine months ended September 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 570 personnel had been
terminated as of June 30, 2000.
In 2000, the Company has incurred $544,000 in severance and
relocation expenses in connection with the restructuring of its
Envelope operations in the Northeast. Additionally, Commercial
Printing incurred severance of $212,000 in the reorganization of its
operations in the west.
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 (10,104) (523) (81) (10,708)
-------- ------- ------- --------
Balance 12/31/98 1,595 2,384 1,274 5,253
Utilized in 1999 (591) (1,608) (1,011) (3,210)
Transferred 19 (418) 399 -
-------- ------- ------- --------
Balance 12/31/99 1,023 358 662 2,043
Additions in 2000 - 311 501 812
Utilized in 2000 (833) (669) (1,353) (2,855)
Transferred (190) - 190 -
-------- ------- ------- --------
Balance 6/30/00 $ - $ - $ - $ -
======== ======= ======= ========
</TABLE>
10
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<PAGE>
Additionally, the Label segment began restructuring certain of its
operations in response to market changes and increasing costs. Severance
and related expenses incurred in 2000 in connection with these activities
have totaled $323,000.
5. COMMITMENTS AND CONTINGENCIES
In July 1999, the Company and certain of its subsidiaries
("Originators") entered into an agreement to sell, on a revolving basis,
trade receivables to a wholly-owned subsidiary, Mail-Well Trade Receivables
Corp. ("MTRC"). MTRC was capitalized by the Company as a bankruptcy-remote
special purpose entity that is subject to certain covenants and restrictions,
including a restriction from engaging in any business or activity unrelated
to acquiring and selling interests in receivables. New receivables, except
those failing certain eligibility criteria, are sold to MTRC on a daily basis
as previously sold accounts receivables are collected. MTRC, in turn, sells
an undivided variable percentage interest in the pool of receivables, up to
a maximum of $75 million (reduced from $150 million at December 31, 1999), to
a multi-seller receivables securitization company, for which there are
no repurchase agreements. The Company maintains a subordinated interest in
the portion of the pooled receivables, which are not transferred to the
securitization company.
The Company's securitization is accounted for as a sale in accordance
with FASB Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. Therefore, the Company's
accounts receivable have been reduced by the amount of receivables sold to
MTRC and the retained interest in the pool of receivables has been reported
as an investment available for sale, recorded at its estimated fair value. An
allowance for doubtful accounts is also maintained for both receivables not
included in the pool and for its retained interest in the pool. As of
September 30, 2000, the Company had sold $143.7 million of accounts receivable
to MTRC and MTRC had sold beneficial interests totaling $75.0 million to the
securitization company.
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 November 1996, the Company refinanced certain equipment under a sale/
leaseback arrangement. In 1997, the Company reacquired the equipment from
the original lessor and sold and leased back such equipment from a new
buyer-lessor. In August 2000, the Company entered into a renewed lease
related to substantially the same pool of equipment, which added certain
additional pieces as substitute for previously disposed equipment for a
total fair value of approximately $23.5 million. In addition, the Company
refinanced a new pool of equipment under a sale/leaseback arrangement with
a fair value of $19 million. The proceeds were used to pay down the secured
revolving line of credit.
The leasebacks are classified as operating leases. At the end of the six
year lease term, the Company may either (1) purchase the equipment for a
specified amount, (2) sell the equipment on behalf of the lessor, or (3)
return the equipment to the lessor for a fee. If the Company elects to return
the equipment to the lessor at the end of the lease term, the Company has
guaranteed a residual value of $17 million for the benefit of the lessor.
6. SEGMENT INFORMATION
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. 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, Envelope, Label and
Printed Office Products. ABP segments were included in Mail-Well's segments
as follows: Curtis 1000 and Discount Labels is included in Printed Office
Products; International Envelope in Envelope; and Label Lynx in Label.
11
<PAGE>
<PAGE>
The segment information that follows excludes the Jen-Coat
operation, which is shown as a discontinued operation in the
consolidated statements of operations for the three and nine-months
ended September 30, 2000. See Note 2 for further information.
Two locations were reclassified from Envelope to Commercial
Printing and Printed Office Products, respectively, since the 1999
Form 10-K. Label Lynx was reclassified from Printed Office Products
to Label since the March 31, 2000 Form 10-Q. Segment information for
all periods has been restated to reflect these changes. Segment
information as of and for the three and nine-months ended September
30, 2000 and 1999 is presented below:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES TO EXTERNAL CUSTOMERS:
Commercial Printing $ 250,998 $ 220,034 $ 696,680 $ 574,212
Envelope 213,284 176,087 625,047 547,153
Printed Office Products 93,840 40,640 257,354 116,866
Label 57,434 56,026 171,019 134,019
---------- ---------- ---------- ----------
Total $ 615,556 $ 492,787 $1,750,100 $1,372,250
========== ========== ========== ==========
OPERATING INCOME (LOSS):
Commercial Printing $ 12,138 $ 20,184 $ 44,765 $ 48,437
Envelope 23,539 21,812 65,334 69,070
Printed Office Products 9,183 3,544 26,815 10,552
Label (1,292) 4,623 6,647 10,245
Corporate (9,756) (5,706) (23,351) (17,302)
---------- ---------- ---------- ----------
Total $ 33,812 $ 44,457 $ 120,210 $ 121,002
========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION:
Commercial Printing $ 7,164 $ 5,876 $ 20,370 $ 16,644
Envelope 5,093 3,733 15,233 11,285
Printed Office Products 1,837 691 5,535 1,909
Label 2,018 2,145 5,958 5,004
Corporate 4,854 2,428 11,023 6,323
---------- ---------- ---------- ----------
Total $ 20,966 $ 14,873 $ 58,119 $ 41,165
========== ========== ========== ==========
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
IDENTIFIABLE ASSETS:
Commercial Printing $ 740,379 $ 637,013
Envelope 625,637 530,733
Printed Office Products 290,175 124,394
Label 216,983 218,023
Corporate (81,226) (166,122)
---------- ----------
Total assets $1,791,948 $1,344,041
========== ==========
</TABLE>
Intercompany sales by segment include $1,713,000, $6,274,000,
$3,111,000 and $662,000 for Commercial Printing, Envelope, Printed
Office Products & Label, respectively for the three months of 2000
and $4,397,000, $11,940,000, $6,920,000 and $2,260,000, respectively
for the nine-months of 2000. These amounts have been eliminated in
consolidation and are excluded from the amounts above.
12
<PAGE>
<PAGE>
Depreciation and amortization shown above excludes depreciation
and amortization for the discontinued operation.
7. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In December 1998, MWI ("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. The Senior
Notes are guaranteed by the majority 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.
13
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Quarter Ended September 30, 2000
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ - $113,963 $436,933 $64,660 $ - $615,556
COST OF SALES - 90,125 339,997 49,744 - 479,866
------- -------- -------- ------- -------- --------
GROSS PROFIT - 23,838 96,936 14,916 - 135,690
OTHER OPERATING COSTS
Selling, administrative and other 91 18,941 73,421 8,346 - 100,799
Restructuring costs - 544 535 - - 1,079
------- -------- -------- ------- -------- --------
Total Other Operating Costs 91 19,485 73,956 8,346 - 101,878
------- -------- -------- ------- -------- --------
OPERATING INCOME (LOSS) (91) 4,353 22,980 6,570 - 33,812
OTHER (INCOME) EXPENSE
Interest expense 1,974 18,116 7,409 2,749 (7,571) 22,677
Other (income) expense (2,212) (5,391) (103) 437 7,571 302
------- -------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES 147 (8,372) 15,674 3,384 - 10,833
PROVISION (BENEFIT) FOR
INCOME TAXES - (3,173) 6,000 1,283 - 4,110
------- -------- -------- ------- -------- --------
INCOME (LOSS) BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 147 (5,199) 9,674 2,101 - 6,723
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 6,576 11,775 4,663 - (23,014) -
------- -------- -------- ------- -------- --------
NET INCOME $ 6,723 $ 6,576 $ 14,337 $ 2,101 $(23,014) $ 6,723
======= ======== ======== ======= ======== ========
</TABLE>
14
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Quarter Ended September 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 $ - $84,971 $325,848 $81,968 $ - $492,787
COST OF SALES - 66,126 253,666 60,340 - 380,132
------- ------- -------- ------- -------- --------
GROSS PROFIT - 18,845 72,182 21,628 - 112,655
OTHER OPERATING COSTS 42 17,092 38,872 12,192 - 68,198
------- ------- -------- ------- -------- --------
OPERATING INCOME (LOSS) (42) 1,753 33,310 9,436 - 44,457
OTHER (INCOME) EXPENSE
Interest expense 2,136 13,202 1,097 506 (2,212) 14,729
Other (income) expense (2,212) (129) 340 (148) 2,212 64
------- ------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES 34 (11,320) 31,873 9,077 - 29,664
PROVISION (BENEFIT) FOR
INCOME TAXES - (4,640) 14,486 2,317 - 12,163
------- ------- -------- ------- -------- --------
INCOME (LOSS) BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 34 (6,680) 17,387 6,760 - 17,501
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 17,467 24,147 4,613 - (46,227) -
------- ------- -------- ------- -------- --------
NET INCOME $17,501 $17,467 $ 22,000 $ 6,760 $(46,227) $ 17,501
======= ======= ======== ======= ======== ========
</TABLE>
15
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Nine-months Ended September 30, 2000
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ - $339,841 $1,174,332 $235,927 $ - $1,750,100
COST OF SALES - 271,103 901,662 174,485 - 1,347,250
------- -------- ---------- -------- -------- ----------
GROSS PROFIT - 68,738 272,670 61,442 - 402,850
OTHER OPERATING COSTS
Selling, administrative and other 192 53,648 193,535 34,186 - 281,561
Restructuring costs - 544 535 - - 1,079
------- -------- ---------- -------- -------- ----------
Total Other Operating Costs 192 54,192 194,070 34,186 - 282,640
------- -------- ---------- -------- -------- ----------
OPERATING INCOME (LOSS) (192) 14,546 78,600 27,256 - 120,210
OTHER (INCOME) EXPENSE
Interest expense 6,062 57,280 23,087 1,898 (22,714) 65,613
Other (income) expense (6,635) (16,256) (645) 795 22,714 (27)
------- -------- ---------- -------- -------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES 381 (26,478) 56,158 24,563 - 54,624
PROVISION (BENEFIT) FOR
INCOME TAXES - (10,069) 21,789 9,659 - 21,379
------- -------- ---------- -------- -------- ----------
INCOME (LOSS) BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 381 (16,409) 34,369 14,904 - 33,245
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 33,531 52,638 13,412 - (99,581) -
------- -------- ---------- -------- -------- ----------
INCOME FROM CONTINUING
OPERATIONS 33,912 36,229 47,781 14,904 (99,581) 33,245
DISCONTINUED OPERATIONS - (2,307) 2,009 1,356 - 1,058
------- -------- ---------- -------- -------- ----------
INCOME BEFORE
EXTRAORDINARY ITEM 33,912 33,922 49,790 16,260 (99,581) 34,303
EXTRAORDINARY ITEM 1,838 (391) - - - 1,447
------- -------- ---------- -------- -------- ----------
NET INCOME $35,750 $ 33,531 $ 49,790 $ 16,260 $(99,581) $ 35,750
======= ======== ========== ======== ======== ==========
</TABLE>
16
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Nine-months Ended September 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 $ - $274,246 $887,706 $210,298 $ - $1,372,250
COST OF SALES - 213,459 688,123 153,072 - 1,054,654
------- -------- -------- -------- --------- ----------
GROSS PROFIT - 60,787 199,583 57,226 - 317,596
OTHER OPERATING COSTS 153 48,675 116,377 31,839 - 199,594
------- -------- -------- -------- --------- ----------
OPERATING INCOME (LOSS) (153) 12,112 83,206 25,837 - 121,002
OTHER (INCOME) EXPENSE
Interest expense 6,407 35,479 2,101 4,194 (6,636) 41,545
Other (income) expense (6,635) (467) (305) 130 6,636 (640)
------- -------- -------- -------- --------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES 75 (22,900) 81,410 21,512 - 80,097
PROVISION FOR
INCOME TAXES - (9,387) 35,949 6,278 - 32,840
------- -------- -------- -------- --------- ----------
INCOME (LOSS) BEFORE EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 75 (13,513) 45,461 15,234 - 47,257
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 47,182 60,695 13,087 - (120,964) -
------- -------- -------- -------- --------- ----------
NET INCOME $47,257 $ 47,182 $ 58,548 $ 15,234 $(120,964) $ 47,257
======= ======== ======== ======== ========= ==========
</TABLE>
17
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
September 30, 2000
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ - $ 10,217 $ (10,264) $ 553 $ - $ 506
Receivables, net - 2,924 193,229 40,782 - 236,935
Investment in accounts receivable
Securitization - - - 64,756 - 64,756
Accounts receivable - other - 12,021 5,857 1,049 - 18,927
Inventories, net - 48,991 102,965 24,027 - 175,983
Net assets of discontinued operations - - - - - -
Note receivable from issuer 147,436 - - - (147,436) -
Other current assets 349 38,543 23,015 2,491 (15,820) 48,578
-------- ---------- ---------- -------- ----------- ----------
Total current assets 147,785 112,696 314,802 133,658 (163,256) 545,685
INVESTMENT IN SUBSIDIARIES 399,180 925,408 60,484 - (1,385,072) -
PROPERTY, PLANT AND
EQUIPMENT, NET - 129,360 361,862 89,806 - 581,028
GOODWILL, NET - 47,956 432,200 85,061 - 565,217
OTHER INTANGIBLES 926 52,113 463 53,502
NOTES RECEIVABLE FROM
SUBSIDIARIES - 245,000 - - (245,000) -
OTHER ASSETS, NET 3,723 56,375 2,252 4,158 (19,992) 46,516
-------- ---------- ---------- -------- ----------- ----------
TOTAL $550,688 $1,517,721 $1,223,713 $313,146 $(1,813,320) $1,791,948
======== ========== ========== ======== =========== ==========
CURRENT LIABILITIES
Accounts payable $ - $ 30,841 $ 111,346 $ 18,237 $ - $ 160,424
Accrued compensation and vacation - 13,090 44,506 7,000 - 64,596
Other current liabilities 12,234 69,878 (118,764) 145,804 (15,820) 93,332
Note payable to Parent - 147,436 - - (147,436) -
Current portion of long-term debt
and capital leases - 28,651 3,263 11,398 - 43,312
-------- ---------- ---------- -------- ----------- ----------
Total current liabilities 12,234 289,896 40,351 182,439 (163,256) 361,664
LONG-TERM DEBT AND
CAPITAL LEASES 139,063 746,077 19,837 14,870 - 919,847
NOTES PAYABLE TO ISSUER - - 245,000 - (245,000) -
Deferred income taxes - 62,313 12,157 10,972 - 85,442
OTHER LONG-TERM
LIABILITIES - 20,255 24,723 618 (19,992) 25,604
-------- ---------- ---------- -------- ----------- ----------
Total liabilities 151,297 1,118,541 342,068 208,899 (428,248) 1,392,557
SHAREHOLDERS' EQUITY 399,391 399,180 881,645 104,247 (1,385,072) 399,391
-------- ---------- ---------- -------- ----------- ----------
TOTAL $550,688 $1,517,721 $1,223,713 $313,146 $(1,813,320) $1,791,948
======== ========== ========== ======== =========== ==========
</TABLE>
18
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
December 31, 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 $ - $ 27,667 $ (28,003) $ 3,954 $ - $ 3,618
Receivables, net - 87 35,860 49,097 - 85,044
Investment in accounts receivable
Securitization - - - 54,396 - 54,396
Accounts receivable - other - 8,572 10,004 2,188 - 20,764
Inventories, net - 36,337 82,277 26,142 - 144,756
Note receivable from Issuer 147,436 - - - (147,436) -
Other current assets 345 24,247 3,597 4,348 (6,986) 25,551
-------- ---------- --------- -------- ----------- ----------
Total current assets 147,781 96,910 103,735 140,125 (154,422) 334,129
INVESTMENT IN SUBSIDIARIES 377,318 663,928 48,574 - (1,089,820) -
PROPERTY, PLANT AND
EQUIPMENT, NET - 104,938 323,180 104,038 - 532,156
GOODWILL, NET - 45,460 279,252 128,771 - 453,483
NOTE RECEIVABLE FROM
SUBSIDIARIES - 245,000 - - (245,000) -
OTHER INTANGIBLES, NET - 1,130 3,640 - - 4,770
OTHER ASSETS, NET 2,943 31,387 211 8,432 (23,470) 19,503
-------- ---------- --------- -------- ----------- ----------
TOTAL $528,042 $1,188,753 $ 758,592 $381,366 $(1,512,712) $1,344,041
======== ========== ========= ======== =========== ==========
CURRENT LIABILITIES
Accounts payable $ - $ 19,499 $ 79,447 $ 23,794 $ - $ 122,740
Accrued compensation and vacation - 8,388 32,638 9,016 - 50,042
Other current liabilities 682 99,317 (163,815) 123,801 (6,986) 52,999
Note payable to Parent - 147,436 - - (147,436) -
Current portion of long-term debt
And capital leases - 674 4,652 8,563 - 13,889
-------- ---------- --------- -------- ----------- ----------
Total current liabilities 682 275,314 (47,078) 165,174 (154,422) 239,670
LONG-TERM DEBT AND
CAPITAL LEASES 152,050 472,180 6,690 22,170 - 653,090
NOTE PAYABLE TO ISSUER - - 245,000 - (245,000) -
DEFERRED INCOME TAXES - 57,881 - 9,709 (3,478) 64,112
OTHER LONG-TERM
LIABILITIES - 2,560 25,160 623 (19,992) 8,351
-------- ---------- --------- -------- ----------- ----------
Total liabilities 152,732 807,935 229,772 197,676 (422,892) 965,223
MINORITY INTEREST - 3,500 - 8 - 3,508
SHAREHOLDERS' EQUITY 375,310 377,318 528,820 183,682 (1,089,820) 375,310
-------- ---------- --------- -------- ----------- ----------
TOTAL $528,042 $1,188,753 $ 758,592 $381,366 $(1,512,712) $1,344,041
======== ========== ========= ======== =========== ==========
</TABLE>
19
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Nine-months ended September 30, 2000
(in thousands)
<CAPTION>
Combined Combined
Parent Guarantor Nonguarantor
Guarantor Issuer Subsidiaries Subsidiaries Elimination Consolidated
--------- ------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES $ (2,229) $ (12,991) $101,547 $ (6,629) $ - $ 79,698
CASH FLOWS FROM
INVESTING ACTIVITIES
Acquisition costs, net of cash
acquired - - (32,168) (313,409) - (345,577)
Proceeds from the sale of
discontinued operations 110,646 110,646
Capital expenditures - (10,399) (37,685) (8,908) - (56,992)
Investment in marketable
securities, net (1,500) 489 1,160 (12,142) - (11,993)
Investment in subsidiaries 4,560 (362,584) - - 358,024 -
Other investing activities 13,727 2,730 1,655 84,734 (73,500) 29,346
-------- ---------- -------- --------- --------- ----------
Net cash used in investing
activities 16,787 (259,118) (67,038) (249,725) 284,524 (274,570)
CASH FLOWS FROM FINANCING ACTIVITIES
Changes due to accounts
receivable securitization, net - (22,784) (50,716) (73,500) 73,500 (73,500)
Net proceeds from common stock
issuance 255 - - - - 255
Proceeds from long-term debt - 1,046,000 - 9,989 - 1,055,989
Repayments of long-term debt and
capital lease obligations (9,998) (745,584) 1,991 (14,084) - (767,675)
Debt issuance costs - (14,913) - - - (14,913)
Investment by parent - (4,560) 31,955 330,629 (358,024) -
Treasury stock purchase/stock
redemption (4,815) (4,815)
Other financing activities - (3,500) - - - (3,500)
-------- ---------- -------- --------- --------- ----------
Net cash provided by financing
activities (14,558) 254,659 (16,770) 253,034 (284,524) 191,841
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - - (81) - (81)
-------- ---------- -------- --------- --------- ----------
NET CHANGE IN CASH AND
CASH EQUIVALENTS - (17,450) 17,739 (3,401) - (3,112)
BALANCE AT BEGINNING OF
YEAR - 27,667 (28,003) 3,954 - 3,618
-------- ---------- -------- --------- --------- ----------
BALANCE AT END OF YEAR $ - $ 10,217 $(10,264) $ 553 $ - $ 506
======== ========== ======== ========= ========= ==========
</TABLE>
20
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
Nine-months ended September 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 $ 2,568 $ 100,735 $ (20,392) $ (92,407) $ 97,400 $ 87,904
CASH FLOWS FROM
INVESTING ACTIVITIES
Acquisition costs, net of cash
acquired - - (77,925) (115,447) - (193,372)
Capital expenditures - (9,905) (44,149) (8,796) - (62,850)
Investment in subsidiaries - (219,680) (91,649) - 311,329 -
Other investing activities (3,240) 1 4,134 1,287 672 2,854
------- --------- --------- --------- --------- ---------
Net cash used in investing
activities (3,240) (229,584) (209,589) (122,956) 312,001 (253,368)
CASH FLOWS FROM FINANCING
ACTIVITIES
Changes due to accounts
receivable securitization, net - 43,482 53,918 77,400 (97,400) 77,400
Net proceeds from common stock
issuance 672 - - - - 672
Proceeds from long-term debt - 312,235 - 9,805 - 322,040
Repayments of long-term debt and
capital lease obligations - (216,337) (2,774) (10,439) - (229,550)
Investment by parent - 672 173,228 138,101 (312,001) -
Other financing activities - (1,433) - - - (1,433)
------- --------- --------- --------- --------- ---------
Net cash provided by financing
activities 672 138,619 224,372 214,867 (409,401) 169,129
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - - 107 - 107
------- --------- --------- --------- --------- ---------
NET CHANGE IN CASH AND
CASH EQUIVALENTS - 9,770 (5,609) (389) - 3,772
BALANCE AT BEGINNING OF YEAR - 6,952 (7,311) 1,734 - 1,375
------- --------- --------- --------- --------- ---------
BALANCE AT END OF YEAR $ - $ 16,722 $ (12,920) $ 1,345 $ - $ 5,147
======= ========= ========= ========= ========= =========
</TABLE>
21
<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following should be read in conjunction with the consolidated
historical financial statements and related notes of Mail-Well, Inc. and
its subsidiaries (the "Company") included elsewhere in this report. In
addition to the historical information contained herein, this report
contains forward-looking statements. The reader of this information
should understand that all such forward-looking statements are subject
to various uncertainties and risks that could affect their outcome. The
Company's actual results could differ materially from those suggested by
such forward-looking statements. Factors which could cause or
contribute to such differences include, but are not limited to, the
following:
* paper and other raw material costs and the ability to pass
through paper costs to customers
* general labor conditions
* ability to obtain productivity savings
* postage rates and other changes in the direct mail industry
* competition from electronic media, including the internet
* demand for printed materials
* interest rates and foreign currency exchange rates
* ability to obtain additional financing
* availability of acquisition opportunities and their related
costs
* ability to achieve cost savings from integration of
acquisitions
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.
CONSOLIDATED RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
1999
Net sales for the quarter ended September 30, 2000 increased 24.9%
to $615.6 million compared to net sales of $492.8 million for the
quarter ended September 30, 1999. This increase in net sales was
attributable to sales from companies acquired during 2000, a full
quarter of sales from companies acquired during 1999, internal growth in
Commercial Printing and Envelope, and pricing within the Printed Office
Products segment offset by a decline in volume in Printed Office
Products and unfavorable pricing within the Envelope segment.
Gross profit of $135.7 million for the quarter ended September 30,
2000 represents a 20.4% increase over the $112.7 million of gross profit
earned during the quarter ended September 30, 1999. The increase in
gross profit was due primarily to acquisitions and was reduced by
charges totaling $9.7 million incurred principally to write-down assets
at certain Commercial Printing and Label plants. Management does not
expect these charges to recur. Expressed as a percentage of net sales,
gross profit decreased by 90 basis points to 22.0% for the quarter ended
September 30, 2000 compared to 22.9% for the quarter ended September 30,
1999. Excluding the nonrecurring charges, gross profit as a percentage
of sales was 23.6%. The higher percentage is due primarily to the
impact of acquisitions offset by the unfavorable pricing within
Envelope.
Expressed as a percentage of net sales, other operating costs
(which includes selling, administrative, amortization and other
expenses) increased to 16.4% for the quarter ended September 30, 2000
from 13.8% in the quarter ended September 30, 1999. The increase was
due primarily to the impact of acquisitions including the impact of
higher amortization expense, and higher selling and administrative
expenses within Commercial Printing.
Operating income decreased to $33.8 million for the quarter, down
from $44.5 million earned in the third quarter of September 30, 1999.
Operating income was negatively impacted by nonrecurring charges, which
totaled $10.1 million and restructuring charges of $1.1 million.
Excluding nonrecurring and restructuring charges, operating income for
the third quarter was $45.0 million. Operating income in the third
quarter contributed by operations acquired in 2000 and 1999 was
partially offset by higher amortization expense due to these
acquisitions and lower earnings primarily in Commercial Printing and the
traditional forms business of Printed Office Products.
22
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Income from continuing operations for the quarter ended September
30, 2000, decreased to $6.7 million from $17.5 million earned in the
third quarter of 1999. Net income excluding nonrecurring and
restructuring charges was $13.2 million. The decrease in net income was
caused by lower operating income and increased interest expense due to
acquisitions and higher interest rates. Earnings per diluted share from
continuing operations decreased to $0.14 in the quarter compared to
$0.32 earned in the third quarter of 1999. Excluding nonrecurring and
restructuring charges, earnings per diluted share was $0.25 for the
third quarter of 2000.
Management is evaluating all of its operations in response to
pricing pressures and changing business conditions. Through this
evaluation, management expects to identify and accelerate profit
enhancement programs that will result in additional restructuring
charges by December 31, 2000.
NINE-MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE-MONTHS ENDED
SEPTEMBER 30, 1999
Net sales for the nine-months ended September 30, 2000 increased
29.0% to $1,750.1 million compared to net sales of $1,372.3 million for
the nine-months ended September 30, 1999. This increase in net sales was
attributable to sales from companies acquired during 2000, a full nine-
months of sales from companies acquired during 1999 and internal growth
in Commercial Printing, Envelope and Label offset by a decline in volume
in Printed Office Products and unfavorable pricing within the Envelope
segment.
Gross profit of $402.9 million for the nine-months ended September
30, 2000 represents a 26.8% increase over the nine-months ended
September 30, 1999. Gross profit as of September 30, 2000 was negatively
impacted by adjustments totaling $9.7 million to write-down assets at
certain Commercial Printing and Label plants. Management does not
expect these charges to recur. Expressed as a percent of net sales,
gross profit decreased slightly to 23.0% from 23.1% for the nine-months
ended September 30, 1999. Excluding the nonrecurring charges, gross
margin would have been 23.6%. The higher percentage was due primarily
to the impact of acquisitions offset by lower margins in the Envelope
segment during the second quarter as a result of its strategy to grow
sales volume by lowering prices.
Selling, administrative and other costs as a percentage of sales
were 16.1% for the nine-months ended September 30, 2000 compared to
14.3% for the comparable period in 1999. This increase was due mainly
to the impact of acquisitions.
Operating income was $120.2 for the nine-months ended September
30, 2000, $0.8 million lower than the $121.0 million reported in 1999.
Operating income was negatively impacted by additional nonrecurring
charge, which totaled $10.1 and restructuring charges of $1.1 million.
Excluding the nonrecurring and restructuring charges, operating income
would have been $131.4 million.
Income from continuing operations for the nine-months ended
September 30, 2000 decreased to $33.2 million from $47.3 million earned
in the nine-months of the prior year. Income from continuing operations
without nonrecurring charges and the restructuring charge would have
been $39.7 million. The decline in income from continuing operations
was the result of lower operating income and increased interest expense
due to acquisitions and higher interest rates. Earnings per diluted
share from continuing operations decreased to $0.65 for the nine-months
ended September 30, 2000 from $0.97 reported in 1999. Excluding
nonrecurring charges and the restructuring charges, earnings per diluted
share was $0.76.
23
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RESULTS OF BUSINESS SEGMENT OPERATIONS
COMMERCIAL PRINTING
-------------------
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
1999
NET SALES--Net sales increased by $31.0 million (14.1%) to $251.0
million for the quarter ended September 30, 2000 from the $220.0 million
reported in the third quarter of 1999. Acquisitions in 1999 and 2000
accounted for $20.4 million of the sales increase. Volume increased
approximately 4.5% in the quarter compared to the comparable period of
1999.
OPERATING INCOME--Gross profit totaled $50.0 million in the
quarter, 19.9% of sales, compared to $49.4 million, 22.4% of sales,
reported in the third quarter of 1999. Operating income was $12.1
million in the quarter, down from $20.2 million earned in 1999. Results
were adversely affected by charges, which management does not expect to
recur, of $6.0 million recorded during the quarter principally to write-
down assets at its plants in Indianapolis and Atlanta. Also included in
the results of the quarter was severance expense of $0.2 million related
to the segment's 1998 restructuring plans. Operating income for the
quarter excluding the nonrecurring adjustments and restructuring
expenses, was $18.4 million. Operating income in the third quarter was
lower than in 1999 due to a large bad debt and higher segment
administrative expenses.
NINE-MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE-MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES--Net sales increased $122.5 million (21.3%) to $696.7
million for the nine-months ended September 30, 2000 from sales of
$574.2 million reported during the nine-months ended September 30, 1999.
The sales increase was due to volume increases of approximately 7.5%
with the balance due to the impact of acquisitions in 1999 and 2000.
OPERATING INCOME--Gross profit was $149.4 million, 21.4% of sales,
for the nine-months ended September 30, 2000 compared to $128.4 million,
22.4% of sales, during the nine-months ended September 30, 1999.
Operating income for the nine-months ended September 30, 2000 was $44.8
million, down from $48.4 million earned in 1999. Results were adversely
affected by charges, which management does not expect to recur, of $6.0
million recorded during the third quarter principally to write-down
assets at its plants in Indianapolis and Atlanta. Results for the nine-
months ended September 30, 2000 excluding nonrecurring charges and
restructuring charges ($0.2 million) were $51.0 million. The increase
was due primarily to operating income contributed by companies acquired
in 2000 and 1999.
ENVELOPE
--------
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
1999
NET SALES--Net sales were $213.3 million, an increase of $37.2
million (21.1%) for the quarter ended September 30, 2000 compared to the
quarter ended September 30, 1999. The increase was attributable to
sales of $27.6 million from companies acquired during 2000 and a full
quarter of sales from a company acquired during 1999 and from unit
volume growth.
OPERATING INCOME--Gross profit for the quarter increased to $46.8
million from $41.3 million in the third quarter of 1999. This increase
was due to the impact of acquisitions. Gross margin decreased to 22.0%
in the current quarter from 23.4% in the third quarter of 1999. The
decline in gross margin was due primarily to competitive pricing
pressures, higher paper prices and higher manufacturing costs.
Operating income increased to $23.5 million in the quarter from $21.8
million earned in the third quarter of 1999. The increase in operating
income was primarily the result of acquisitions, offset by severance and
moving expenses associated with the 1998 restructuring plan totaling
$0.5 million. Excluding the restructuring charges, operating income was
$24.0 million.
24
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NINE-MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE-MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES--For the nine-months ended September 30, 2000, net sales
of the Envelope segment were $625.0 million, an increase of $77.9
million (14.2%) compared to the nine-months ended September 30, 1999.
Acquisitions during 2000 and 1999 accounted for $65.4 million of the
increase in net sales. The remaining portion of the increase was due to
higher volume, which more than offset the impact on revenue of lower
pricing.
OPERATING INCOME--Gross margin for the nine-months ended September
30, 2000 declined 270 basis points to 21.6% compared to the comparable
period of the prior year. Operating income was $65.3 million for the
nine-months ended September 30, 2000, down $3.7 million (5.4%) from
operating income earned in the comparable period in 1999 and, included a
restructuring charge of $0.5 million. This decline in operating income
was due to general pricing pressures, higher paper prices and changes in
product mix, which more than offset operating income contributed by
operations acquired in 2000 and 1999. Most of this loss of
profitability occurred in the first half of 2000 due to management's
strategy to grow sales volume by lowering prices. Excluding the
restructuring charges, operating income was $65.9 million.
PRINTED OFFICE PRODUCTS
-----------------------
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
1999
NET SALES--Net sales increased by $53.2 million to $93.8 million
for the quarter ended September 30, 2000 compared to the quarter ended
September 30, 1999. This 130.9% increase in net sales was attributable
to sales of $56.3 million from companies acquired during 2000 offset by
sales declines in the traditional forms business.
OPERATING INCOME--Gross margin increased to 31.9% in the quarter
from 22.7% in the prior year reflecting a change in the mix of products
sold as a result of acquisitions. Gross margin excluding acquisitions
declined to 21.3% in the current quarter. This decline was due an
inability to pass on paper price increases to customers. Operating
expenses as a percent of sales also increased to 22.1% in the quarter
from 14.0% in 1999, mostly as a result of the acquisitions and higher
administrative expenses. Operating income in the third quarter was $9.2
million, an increase of $5.6 million from the third quarter of 1999.
The increase in operating income was the result of acquisitions in 2000,
reduced gross profits and higher administrative expenses due to having a
fully staff segment headquarter office.
NINE-MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE-MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES--Net sales increased by $140.5 million to $257.4 million
for the nine-months ended September 30, 2000 compared to the nine-months
ended September 30, 1999. This 120.2% increase in net sales was
attributable to sales of $148.8 million from companies acquired during
2000 and 1999 offset by decreases in volume in the traditional forms
business.
OPERATING INCOME--Gross margins improved to 31.5% as of September
30, 2000 from 20.8% of the comparable period of 1999. This improvement
was the result of acquisitions, which have had a significant impact on
the mix of products sold. The acquired companies have also caused an
increase in operating expenses to 21.1% as of September 30, 2000
compared to 11.8% as of September 30, 1999. Operating income for the
nine-months ended September 30, 2000 was $26.8 million, an increase of
$16.2 million compared to operating income earned during the nine-months
ended September 30, 1999. This increase was due to the earnings of
companies acquired in 1999 and 2000 offset by lower profits in the
traditional forms business.
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LABEL
-----
QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO THE QUARTER ENDED SEPTEMBER 30,
1999
NET SALES--Net sales increased by $1.4 million (2.5%) to $57.4
million for the quarter ended September 30, 2000 from the $56.0 million
reported in the third quarter of 1999. An acquisition in 2000 accounted
for most of sales increase.
OPERATING INCOME--The Label segment lost $1.3 million in the third
quarter of 2000 compared to earnings of $4.6 million in the third
quarter of 1999. The loss was due primarily to charges recorded in the
quarter principally to write-down assets at its plant in Bowling Green,
Kentucky and one of its plants in the United Kingdom. These charges
totaled $4.1 million and management does not expect them to recur.
Additionally, severance costs related to restructuring totaled $0.3
million during the quarter. Excluding nonrecurring charges and
severance expenses, operating income was $3.1 million for the third
quarter of 2000. Results were lower in the third quarter compared to
the third quarter of 1999 because of the economic environment in the
United Kingdom, inefficiencies at a plant closed in the quarter and
lower sales to the soft drink market.
NINE-MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE-MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES--Net sales increased $37.0 million (27.6%) to $171.0
million for the nine-months ended September 30, 2000 from the $134.0
million for the nine-months ended September 30, 1999. The sales
increase was due to volume increases of approximately 4.7% and the
impact of acquisitions in 1999 and 2000.
OPERATING INCOME--Gross profit was $36.4 million, 21.3% of sales,
for the nine-months ended September 30, 2000 compared to $32.4 million,
24.2% of sales, during the nine-months ended September 30, 1999. The
dollar increase was due to the impact of acquisitions in 2000 and 1999
and improved profitability of the glue applied operations offset by
lower profits in the United Kingdom and nonrecurring asset write-downs.
Operating income for the nine-months ended September 30, 2000 was $6.6
million, down from $10.2 million earned in 1999. Operating income was
negatively impacted by charges, which totaled $4.1 million, to write-
down assets at its plant in Bowling Green, Kentucky and one of its
plants in the United Kingdom. Management does not expect these charges
to recur. Additionally, severance costs related to restructuring
totaled $0.3 million. Excluding nonrecurring charges and severance
expenses, results were $11.1 million for the nine-months ended September
30, 2000.
CORPORATE
---------
The Company leases certain of its major production equipment under
an operating lease. The business segments treat this equipment as
though it was owned and the excess of the operating lease expense over
depreciation expense is recorded as a corporate expense. The Company
considers amortization of goodwill and other intangibles as a corporate
expense and thus does not include amortization of goodwill and other
intangibles in segment results. In addition, corporate expenses include
corporate administrative expense, loss (gain) on disposal of assets and
the reduction of cost of sales from certain supplier rebate programs not
allocated to segments.
Corporate expenses increased for the quarter and nine-months ended
September 30, 2000 by $4.0 million and $6.0 million, respectively, over
the comparable periods in 1999. The increases are the result of higher
amortization expense and operating lease expense, offset by an increase
in supplier rebates recorded at the corporate level. Amortization
expense increased as a result of the acquisitions made in 1999 and 2000
and includes a $1.3 million charge in the third quarter due to purchase
accounting adjustments made during the quarter.
INTEREST EXPENSE
----------------
Interest expense, including accounts receivable securitization
discount, increased $8.0 million and $24.1 million, respectively, for
the quarter and nine-months ended September 30, 2000 compared to the
same periods of 1999. Both increases occurred as a result of higher
average bank debt balances, primarily due to acquisitions, an
26
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increase in the weighted-average borrowing rate due to the refinancing
of certain bank facilities and a general increase in market interest
rates. 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 $75.0 million until July 2004. At
September 30, 2000 and 1999, $143.7 million and $130.0 million,
respectively, had been sold under this agreement. 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 was 37.9% and 39.1% for the quarter and
nine-months periods ended September 30, 2000, respectively, compared to
41.0% for both periods in 1999. The effective tax rate was higher than
the federal statutory rates due to state and provincial income taxes and
certain goodwill amortization that is not tax deductible. See Note 9 of
the Notes to Consolidated Financial Statements included in the Company's
1999 Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL CASH FLOW
--------------------
Net cash flow provided by operating activities was $79.7 million
and $87.9 million for the nine-months ended September 30, 2000 and 1999,
respectively. The decrease in cash flow provided by operating
activities was due primarily to lower net income during the nine-months
ended September 30, 2000 compared to the nine-months ended September 30,
1999. The increase in depreciation and amortization to $64.8 million
during the nine-months ended September 30, 2000 from $42.8 million in
1999 was due primarily to acquisitions made in 2000 and 1999. The
working capital increase during the nine-months ended September 30, 2000
was $13.1 million less than the comparable period of 1999 due to
improved management of working capital. Cash provided by the change in
other assets and liabilities was $15.7 million less in 2000 than in
1999.
Acquisitions required cash payments of $345.6 million and $193.4
million for the nine-months ended September 30, 2000 and 1999,
respectively. Proceeds from the sale of discontinued operations at the
end of the third quarter of 2000 contributed $110.6 million to cash flow
from investing activities (See footnote 2 of the financial statements
contained in Item 1 for further discussion). Capital expenditures were
$57.0 million during the first nine months of 2000 compared to $62.9
million in 1999. The investment in equity securities of $12.0 million
during the nine-months ended September 30, 2000 resulted from funding of
supplemental retirement benefits of certain employees or former
employees of ABP and an investment in Sprockets.com.
Net cash flow from financing activities was $191.8 million and
$169.1 million for the nine-months ended September 30, 2000 and 1999,
respectively. See footnote 3 of the financial statements contained in
Item 1 for explanation of the 2000 financing activities. Includes in
financing activities was the purchase on the open market of 701,100
shares of the Company's common stock for an average price of $6.86. As
of November 3, 2000, the Company had purchased 1,611,100 shares of the
Company's common stock at an average price of $5.55, or a total of
$9,009,541. Therefore, the Company has approximately $990,000 available
under the Board of Directors approval of up to $10 million.
At September 30, 2000, the Company had approximately $235.5
million of available credit under its various credit facilities.
FOREIGN CURRENCY
----------------
The Company's foreign currency exposure primarily relates to its
Canadian & U.K. operations. Net sales provided by the Canadian
operations for the nine-months ended September 30, 2000 and 1999 was USD
$160.4 million and USD $142.7 million, respectively. The impact of the
change in Canadian Dollar exchange rates was immaterial. Net sales
provided by the U.K. operations for the nine-months ended September 30,
2000 and 1999 was USD $23.9 million and USD $20.3 million respectively.
The impact of the change in U.K. Dollar exchange rates was immaterial.
27
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SEASONALITY AND ENVIRONMENT
---------------------------
As the Company expands its Commercial Printing and Label segments,
it has become more impacted by seasonality. Management expects higher
sales in the first and third quarters in the Commercial Printing segment
because of annual report and car brochure business. In addition, the
third quarter is traditionally the strongest for the Label 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 going forward.
NEW ACCOUNTING PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (the "Statement"), as
amended, 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. Because of the Company's
minimal hedging and derivative activity, management does not anticipate
that the adoption of the Statement will have a significant impact on its
operations and financial position.
We will adopt Financial Accounting Standards Board (FAS) No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," the disclosure portions in the fourth
quarter of 2000. The non-disclosure portions of FAS No. 140 will be
adopted March 31, 2001. Management has not yet determined what the
effect of the non-disclosure portions of FAS No. 140 will be on the
earnings and financial position of the Company.
The Emerging Issues Task Force resolved Issue No. 00-10
"Accounting for Shipping and Handling Fees and Costs". The Issue
requires billings to a customer for shipping and handling to be
classified as revenue. The Issue did not determine the classification
of costs incurred for shipping and handling, but management has
determined it will be classified as cost of sales. For historical
income statement classification, these items have been netted in selling
or cost of goods sold. Although management has not completed it
restatement of the prior period financial statements, sales and cost of
goods sold for the nine-months ended September 30, 2000 would be
$1,807,342,000 and $1,403,276,000, respectively.
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 (USD$22,835,000 at September 30,
2000) and the interest rate risk for the investment in accounts
receivable securitization ($64,756,000 at September 30, 2000) are not
considered to be significant since the difference between 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
September 30, 2000, $477.5 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 3 of the Company's June 30, 2000 Form 10-Q for
quantitative and qualitative disclosures about market risk related to
variable rate long-term debt. No significant changes in market risk have
occurred since that filing.
See Item 7A of the Company's 1999 Form 10-K for quantitative and
qualitative disclosures about market risk related to fixed rate long-
term debt. No significant changes in market risk have occurred since
that filing.
28
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PART II OTHER INFORMATION
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 September 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.
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 September 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 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.
10.9 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.
10.10 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.
29
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<PAGE>
10.11 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.
10.12 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.
10.13 Receivables Purchase Agreement dated as of July 1, 1999 among
Mail-Well Trade Receivables Corporation, as Seller, Quincy
Capital Corporation, as Issuer, The Alternative Purchasers
from Time to Time Party thereto, Mail-Well I Corporation, as
Servicer and Bank of America National Trust and Savings
Association, as Administrator; and First Amendment
thereto - incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
10.14 Purchase and Sales Agreement between Mail-Well I Corporation as
initial Servicer and as Guarantor, The Originators from Time
to Time Party thereto and Mail-Well Trade Receivable
Corporation, as Purchaser dated as of July 1, 1999; and
First Amendment thereto - incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.
10.15 Servicing Agreement dated as of July 1, 1999 by and among Mail-
Well I Corporation, as Servicer, Mail-Well Trade Receivables
Corporation, as Seller under the Receivables Purchase
Agreement and Bank of America National Trust and Saving
Association, as Administrator; and First Amendment
thereto - incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
10.16 Merger Agreement and Plan of Merger by and among American
Business Products, Inc., Mail-Well, Inc. and Sherman
Acquisition Corporation dated January 13, 2000 - incorporated
by reference from Exhibit (c) (1) to the Registrant's Tender
Offer Statement on Schedule 14D-1 filed with the commission
on January 21, 2000.
10.17 Change of Control Agreement dated November 15, 1999, between
the Company and Gerald F. Mahoney - incorporated by reference
from the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
10.18 Change of Control Agreement dated November 15, 1999, between
the Company and Paul V. Reilly - incorporated by reference
from the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
10.19 Change of Control Agreement dated November 15, 1999, between
the Company and Gary Ritondaro - incorporated by reference
from the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
10.20 Change of Control Agreement dated November 15, 1999, between
the Company and Robert Meyer - incorporated by reference from
the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
10.21 Change of Control Agreement dated November 15, 1999, between
the Company and Michael A. Zawalski - incorporated by
reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
10.22 Credit Agreement dated as of February 18, 2000 among Mail-Well
I Corporation, Bank of America, N.A., as Administrative
Agent and Letter of Credit Issuing Bank, ABN AMRO Bank,
N.V., as Syndication Agents, the Bank of Nova Scotia, as
Documentation Agent and certain other financial institutions
party thereto.
10.23 Security Agreement dated as of February 18, 2000, by and among
Mail-Well I Corporation, Mail-Well, Inc., certain other
affiliates of the Company and Bank of America, N.A., as
agent.
27.1 * Financial Data Schedule for three-months ended September 30,
2000.
27.2 * Financial Data Schedule for three-months ended September 30,
1999.
[FN]
-----------
* Filed herewith.
(b) Reports on Form 8-K
A report on Form 8-K was filed on July 17, 2000, announcing second
quarter earnings, letter of intent for sale of Jen-Coat, and stock buy-
back program.
30
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MAIL-WELL, INC.
(Registrant)
By /s/ Gerald F. Mahoney
-----------------------------
Date: November 13, 2000 Gerald F. Mahoney
Chairman of the Board/
Chief Executive Officer
By /s/ William W. Huffman, Jr.
-----------------------------
Date: November 13, 2000 William W. Huffman, Jr.
Corporate Controller
31
