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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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.)
8310 S. Valley Highway, #400 Englewood, CO 80112
(Address of principal executive offices) (Zip Code)
303-790-8023
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECKMARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes /X/ No / /
As of August 12, 2002, the Registrant had 48,251,478 shares of Common
Stock, $0.01 par value, outstanding.
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1
MAIL-WELL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
PAGE
----
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements................................. 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 24
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..................................... 36
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. 37
Item 6. Exhibits and Reports on Form 8-K ................... 37
Signature Page.......................................................... 41
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAIL-WELL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, 2002 DECEMBER 31, 2001
(UNAUDITED)
------------------ -------------------
ASSETS
Current assets
Cash and cash equivalents $ 147,694 $ 894
Accounts receivable, net 201,114 230,770
Inventories, net 111,164 110,859
Net assets of discontinued operations - 129,568
Net assets held for sale 50,340 52,368
Other current assets 84,792 71,137
---------- ----------
Total current assets 595,104 595,596
Property, plant and equipment, net 401,088 422,278
Goodwill and other intangible assets, net 413,874 411,416
Other assets, net 37,057 46,286
---------- ----------
Total assets $1,447,123 $1,475,576
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 145,173 $ 160,040
Accrued compensation and related liabilities 49,669 50,757
Other current liabilities 58,316 62,499
Current portion of long-term debt 144,426 303,170
---------- ----------
Total current liabilities 397,584 576,466
Long-term debt 794,867 552,051
Deferred income taxes 50,622 88,393
Other long-term liabilities 17,259 16,789
---------- ----------
Total liabilities 1,260,332 1,233,699
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value; 25,000 shares authorized, no shares issued - -
Common stock, $0.01 par value; 100,000,000 shares authorized, 48,225,031 and
48,325,801 shares issued and outstanding in 2002 and 2001, respectively 482 483
Paid-in capital 213,711 214,138
Retained earnings (deficit) (13,207) 46,623
Deferred compensation (2,618) (3,359)
Accumulated other comprehensive loss (11,577) (16,008)
---------- ----------
Total shareholders' equity 186,791 241,877
---------- ----------
Total liabilities and shareholders' equity $1,447,123 $1,475,576
========== ==========
See notes to condensed consolidated financial statements.
3
MAIL-WELL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
Net sales....................................... $420,967 $471,560 $864,449 $960,336
Cost of sales .................................. 342,128 370,692 697,582 755,999
-------- -------- -------- --------
Gross profit.................................... 78,839 100,868 166,867 204,337
Other operating expenses:
Selling and administrative expenses ........... 69,048 70,170 137,239 142,896
Amortization of intangibles.................... 514 4,332 1,016 8,456
Impairment loss on assets held for sale........ 8,871 8,807 8,871 8,807
Impairment on former discontinued operation.... 10,407 - 10,407 -
Restructuring and other charges................ 9,274 19,384 23,800 20,049
-------- -------- -------- --------
Operating income (loss)......................... (19,275) (1,825) (14,466) 24,129
Other expense:
Interest expense............................... 18,973 16,463 33,878 33,771
Other expense ................................. 45 501 337 984
-------- -------- -------- --------
Loss from continuing operations before income
taxes........................................ (38,293) (18,789) (48,681) (10,626)
Income tax benefit ............................. (5,586) (3,461) (7,128) (1,126)
-------- -------- -------- --------
Loss from continuing operations................. (32,707) (15,328) (41,553) (9,500)
Loss from discontinued operations:
Loss from discontinued operations, net
of tax benefit................................ - (1,336) - (2,982)
Loss on disposal, net of tax benefit ........ (153) (75,861) (8,152) (76,421)
-------- -------- -------- --------
Loss before extraordinary loss.................. (32,860) (92,525) (49,705) (88,903)
Extraordinary loss, net of tax benefit.......... (5,362) - (10,125) -
-------- -------- -------- --------
Net loss........................................ $(38,222) $(92,525) $(59,830) $(88,903)
======== ======== ======== ========
Loss per share - basic and diluted
Continuing operations...................... $ (0.69) $ (0.32) $ (0.87) $ (0.20)
Discontinued operations.................... - (1.63) (0.17) (1.67)
Extraordinary loss......................... (0.11) - (0.22) -
-------- -------- -------- --------
Loss per share - basic and diluted......... $ (0.80) $ (1.95) $ (1.26) $ (1.87)
======== ======== ======== ========
Weighted average shares - basic and diluted..... 47,668 47,464 47,663 47,460
See notes to condensed consolidated financial statements.
4
MAIL-WELL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
----------------
JUNE 30,
--------
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Loss from continuing operations........................................... $ (41,553) $ (9,500)
Adjustments to reconcile net loss to cash provided by operating
activities:
Depreciation and amortization........................................... 27,081 35,790
Noncash portion of restructuring and impairment charges................. 30,256 8,807
Deferred income tax expense (benefit)................................... (4,067) 8,630
Other................................................................... 603 909
Changes in operating assets and liabilities, excluding the effects
of businesses sold:
Trade and other receivables......................................... 33,112 25,606
Inventories......................................................... 1,576 4,127
Accounts payable and accrued expenses............................... (10,555) 22,838
Net change in other current assets and other current liabilities.... (22,102) (12,676)
--------- ---------
Net cash provided by operating activities........................... 14,351 84,531
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs......................................................... (1,021) (3,844)
Proceeds from divestitures, net........................................... 96,887 -
Capital expenditures...................................................... (21,409) (17,208)
Proceeds from the sales of assets......................................... 6,053 3,340
--------- ---------
Net cash provided by (used in) investing activities................. 80,510 (17,712)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in accounts receivable securitization............................ - (75,000)
Proceeds from common stock issuance....................................... 18 6
Proceeds from long-term debt.............................................. 706,288 361,530
Repayments of long-term debt ............................................. (629,114) (378,186)
Debt issuance costs....................................................... (16,574) (2,260)
--------- ---------
Net cash provided by (used in) financing activities................. 60,618 (93,910)
CASH FLOWS FROM DISCONTINUED OPERATIONS
Net cash provided by (used in) discontinued operations.................... (8,550) 28,135
Effect of exchange rate changes on cash and cash equivalents................. (129) (22)
--------- ---------
Net increase in cash and cash equivalents.................................... 146,800 1,022
Cash and cash equivalents at beginning of period............................. 894 589
--------- ---------
Cash and cash equivalents at end of period................................... $ 147,694 $ 1,611
========= =========
See notes to condensed consolidated financial statements.
5
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Mail-Well,
Inc. and subsidiaries (collectively, the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three- and six-
months ended June 30, 2002 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2002. The balance sheet
at December 31, 2001 has been derived from the audited financial statements
at that date but does not include all of the information and footnote
disclosures required by generally accepted accounting principles for
complete financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 2001.
During June 2002, the decision was made to discontinue efforts to sell the
PrintXcel business. As such, the statement of operations for the three- and
six-months ended June 30, 2001 and for the three-months ended March 31,
2002 have been restated to include this business as part of the continuing
operations. The balance sheet for the year ended December 31, 2001 also has
been restated. PrintXcel, which is a business in the Company's Printed
Office Products operating segment, had previously been reported in
discontinued operations.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Statement 141 also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets arising from business combinations completed after
June 30, 2001. Statement 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. Statement 142 requires that
these assets be reviewed for impairment at least annually. Intangible assets
with finite lives will continue to be amortized over their estimated useful
lives. Additionally, Statement 142 requires that goodwill included in the
carrying value of equity method investments no longer be amortized.
Mail-Well adopted Statement 142 on January 1, 2002. The Company has
completed the first step of the two-step process prescribed in Statement 142
to test goodwill for impairment and has concluded that a portion of the
$213.5 million of goodwill related to our commercial printing business is
impaired. The extent of this impairment will not be known until step two of
the process has been completed. The Company will recognize the amount of the
impairment as a cumulative effect of a change in accounting principle as of
January 1, 2002 when it is determined, but no later than December 31, 2002.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. Statement 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. Mail-Well will adopt Statement 143 on
January 1, 2003. The Company is evaluating the impact of the adoption of
Statement 143 on the consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which establishes one accounting model to
be used for long-lived assets to be disposed of by sale and broadens the
presentation of discontinued operations to include more disposal
transactions. Statement 144 supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of and the accounting and
reporting provisions of
6
Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects Of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Mail-Well adopted Statement 144 as of January 1, 2002 and
there was no impact from the adoption of this statement.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement provides guidance on the classification of gains
and losses from the extinguishment of debt and on the accounting for certain
specified lease transactions. The Company is currently evaluating the
provisions of the new statement.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring).
Generally, SFAS No. 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized as incurred, whereas EITF Issue
No. 94-3 required such a liability to be recognized at the time that an
entity committed to an exit plan. The company is currently evaluating the
provisions of the new rule, which is effective for exit or disposal
activities that are initiated after December 31, 2002.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of acquisition costs over the fair value of
net assets of businesses acquired and prior to the adoption of Statement 142
on January 1, 2002 was amortized on a straight-line basis over 40 years.
Other intangible assets primarily arise from the purchase price allocations
of businesses acquired and are based on independent appraisals or internal
estimates and are amortized on a straight-line basis over appropriate
periods.
In accordance with the provisions of SFAS 142, the Company ceased amortizing
goodwill on January 1, 2002. Had SFAS 142 been in effect on January 1, 2001,
the Company would not have recorded goodwill amortization expense of $3.6
million and $7.0 million for the three- and six-months ended June 30, 2001,
respectively. The following table summarizes the reported net losses for the
three- and six-months ended June 30, 2002 and June 30, 2001, adjusted to
exclude goodwill amortization expense, and the related tax effect, that
would not have been recorded had the provisions of SFAS 142 been in effect
January 1, 2001 (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001
- -----------------------------------------------------------------------------------------------------------------
Reported net loss $(38,222) $(92,525) $(59,830) $(88,903)
Goodwill amortization, net of tax - 3,142 - 6,110
- -----------------------------------------------------------------------------------------------------------------
Adjusted net loss $(38,222) $(89,383) $(59,830) $(82,793)
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share - as reported $ (0.80) $ (1.95) $ (1.26) $ (1.87)
Basic and diluted loss per share - adjusted $ (0.80) $ (1.88) $ (1.26) $ (1.74)
- -----------------------------------------------------------------------------------------------------------------
7
The following is a summary of other intangible assets, net of related
accumulated amortization (in thousands):
COMMERCIAL
ENVELOPE PRINTING PRINTXCEL TOTAL
- -----------------------------------------------------------------------------------------------------------------
Trademarks and tradenames $ 8,260 $ - $4,704 $12,964
Patents 2,021 - - 2,021
Non-compete agreements 1,038 1,729 - 2,767
Other 429 881 481 1,791
- -----------------------------------------------------------------------------------------------------------------
Balance as of June 30, 2002 $11,748 $2,610 $5,185 $19,543
=================================================================================================================
Other intangible assets are all subject to amortization and have original
estimated useful lives as follows: Trademarks - 43 years; Tradenames - 35
years; Patents - 12 years; Non-compete agreements - 5 years; Other - 10 - 40
years. The estimated amortization expense for each of the succeeding five
years is as follows: $2.2 million, $1.9 million, $0.7 million, $0.6 million
and $0.6 million.
4. INVENTORIES
The Company's inventories by major category are as follows (in thousands):
JUNE 30, 2002 DECEMBER 31, 2001
- --------------------------------------------------------------------------------------------------------------------
Raw materials $ 34,926 $ 34,011
Work in process 22,904 22,750
Finished goods 58,977 58,710
- --------------------------------------------------------------------------------------------------------------------
116,807 115,471
Reserves (5,643) (4,612)
- --------------------------------------------------------------------------------------------------------------------
$111,164 $110,859
====================================================================================================================
5. COMPREHENSIVE LOSS
A summary of the comprehensive loss is as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001
------------- ------------- ------------- -------------
Net loss $(38,222) $(92,525) $(59,830) $(88,903)
Other comprehensive income (loss):
Currency translation adjustments, net 5,779 5,120 4,431 (1,408)
Unrealized gain (loss) on investments, net - 27 - (997)
- ---------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 5,779 5,147 4,431 (2,405)
- ---------------------------------------------------------------------------------------------------------------
Comprehensive loss $(32,443) $(87,378) $(55,399) $(91,308)
===============================================================================================================
8
6. LOSS PER SHARE
Basic loss per share is computed by dividing the net loss by the weighted
average number of common shares outstanding for the period. Diluted loss per
share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock. There are no reconciling items between basic and diluted loss
per share.
During the three- and six-months ended June 30, 2002 and 2001, interest on
the Convertible Notes in the amount of $1,214,000 and $2,427,000,
respectively, and shares of 7,319,000 that would be issued upon assumed
conversion of the Convertible Notes were excluded from the calculation of
diluted loss per share due to the antidilutive effect on loss per share. In
addition, the outstanding options to purchase approximately 6,104,000 shares
of common stock in 2002 and 6,500,000 shares of common stock in 2001 were
excluded from the calculation of diluted loss per share because the effect
would be antidilutive.
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
JUNE 30, DECEMBER 31,
2002 2001
- -----------------------------------------------------------------------------------
Senior Secured Credit Facility:
Tranche A term loan, retired $ - $ 194,918
Tranche B term loan, retired - 192,749
Revolving loan facility, retired - 6,000
Revolving loan facility, due 2005 135,000 -
Senior Notes, due 2012 350,000 -
Senior Subordinated Notes, due 2008 300,000 300,000
Convertible Subordinated Notes, due 2002 139,063 139,063
Other 15,230 22,491
- -----------------------------------------------------------------------------------
939,293 855,221
Less current maturities (144,426) (303,170)
- -----------------------------------------------------------------------------------
Long-term debt $ 794,867 $ 552,051
===================================================================================
Current maturities at June 30, 2002 include the anticipated retirement of
the Convertible Notes and current maturities from other debt.
In June 2002, the Company entered into a new three year $300 million Senior
Secured Credit Facility with a consortium of banks (the "Facility"). The
Facility was used to refinance the Company's $800 million Secured Senior
Credit Facility. Under the Facility, loans may be made and letters of credit
issued on a revolving basis in each case subject to availability and subject
to a borrowing base. On June 30, 2002, the Company had outstanding loans and
letters of credit of $146.5 million and had $107.2 million of availability.
Loans made under the Facility bear interest at a base rate or LIBOR, plus a
margin. The Company is required to meet a fixed charge coverage ratio and a
minimum tangible net worth. The Facility is secured by substantially all of
the assets of the Company.
In March 2002, the Company issued $350 million of 9 5/8% Senior Notes due
2012 ("Senior Notes"). Interest is payable semi-annually. The Company may
redeem the Senior Notes, in whole or in part, on or after March 15, 2007, at
redemption prices from 100% to 104.813%, plus accrued and unpaid interest.
In addition, before March 2005, the Company can redeem up to 35% of the
Senior Notes at 109.625% of the principal amount thereof, plus accrued and
unpaid interest, with the net cash proceeds from certain common stock
offerings.
Deferred financing costs of $16.9 million incurred in connection with the
$800 million Secured Senior Credit Facility refinanced in June 2002 were
written off during the six-months ended June 30, 2002. During the quarter
ended March 31, 2002, the pro rata portion of the fees related to the
Tranche A and B term loans repaid with the
9
proceeds from the sale of the Senior Notes and the sale of Curtis 1000, Inc.
were written off. The write-off is reported net of tax as an extraordinary
loss in the condensed consolidated statements of operations.
As of June 30, 2002, the Company was in compliance with all of the covenants
of its various debt agreements.
8. RESTRUCTURING AND OTHER CHARGES
As announced in 2001, the Company is consolidating certain operations to
eliminate excess internal capacity in order to reduce costs and improve its
long-term competitive position. In addition, the Company is significantly
reducing the size of certain of its facilities in response to current market
conditions. The restructuring charge related to these plans totaled $20.7
million in 2002, of which $9.0 million were incurred in the second quarter
of 2002. The following table and discussion present the details of this
restructuring charge, as well as other related charges recorded during the
six-months ended June 30, 2002:
PRINTED
COMMERCIAL OFFICE
(IN THOUSANDS) ENVELOPE PRINTING PRODUCTS CORPORATE TOTAL
---------------------------------------------------------------------------------------------------------------------
Employee separation and related
employee expenses $ - $1,041 $ 507 $ - $ 1,548
Employee training expenses 4,531 - - - 4,531
Other exit costs 3,657 - 807 - 3,957
Asset impairment charges, net 4,730 - 240 - 4,970
Project management expenses 5,656 - - - 5,656
---------------------------------------------------------------------------------------------------------------------
Total restructuring costs 18,574 1,041 1,047 - 20,662
Other charges 985 1,414 - 739 3,138
---------------------------------------------------------------------------------------------------------------------
Total restructuring and other charges $19,559 $2,455 $1,047 $739 $23,800
=====================================================================================================================
In addition to the three envelope manufacturing facilities consolidated in
2001, the envelope business has consolidated six facilities in 2002 and will
consolidate one additional operation in the third quarter of 2002. When this
consolidation plan is completed, the Company will have closed ten envelope
plants and substantially reduced excess internal capacity and improved
utilization of equipment and resources at the remaining 39 plants in the
United States and Canada. In 2001, the Company accrued the separation and
related employee expenses covering the 923 employees expected to be
terminated over the course of this project. As of June 30, 2002, 666
employees had been separated. Employee training expenses include the costs
to train the new employees that have been hired at the plants that are
absorbing the production of the plants being closed. The training programs
for these employees are between three and nine months in duration. Other
exit costs include the expenses incurred to move and reinstall equipment,
and the cost incurred to restore buildings to the condition required by
lease agreements or to prepare them for sale. Project management expenses
are primarily consulting fees and related expenses incurred to assist
management in managing the consolidation project. Consultants were used to
assist in such tasks as capacity planning, workflow planning, production
scheduling and change management. The write-downs recorded for property and
equipment taken out of service or sold as a result of the plant
consolidations are reported net of $6.2 million of proceeds received from
the sales of those assets.
The Commercial Printing segment completed the consolidation of its
operations in the Philadelphia, Pennsylvania area in 2001. In addition, in
response to changes in market conditions, Commercial Printing has made
significant changes to its cost structure by reducing its fixed costs. The
severance costs incurred as a result of eliminating 136 overhead positions
totaled $819,000.
The Printed Office Products segment closed a manufacturing facility in 2002
to eliminate excess internal capacity and reduce costs. Severance incurred
as a result of this plant closure were $134,000 covering 19 employees.
Expenses were also incurred to prepare the building for sale and to write
assets down to fair market value. In addition, Printed Office Products has
reduced headcount at certain of its other facilities in response to market
10
conditions. Severance costs incurred in connection with these reductions,
covering 128 employees, totaled $249,000.
In 2001, the Company initiated several programs to significantly improve
operations and marketing effectiveness. These programs included the
implementation of best practices, the installation of pricing disciplines
and the alignment of equipment and services to better serve customers and
markets. The Company invested $2.4 million in outside assistance in order to
expedite the implementation of these programs. In addition, the Company
incurred consulting fees of $587,000 related to tax matters that arose as a
result of the divestitures. These expenses have been reported as other
charges.
A summary of the activity charged to the restructuring liability during the
six-months ended June 30, 2002 was as follows (in thousands):
PRINTED
COMMERCIAL OFFICE
ENVELOPE PRINTING PRODUCTS TOTAL
------------------------------------------------------------------
Balance, December 31, 2001 $10,126 $ 604 $ 629 $11,359
Payments for severance (4,132) (13) (163) (4,308)
Payments for lease termination costs (100) (110) (99) (309)
Payments for other exit costs (1,338) (118) (126) (1,582)
------------------------------------------------------------------
Balance, June 30, 2002 $ 4,556 $ 363 $ 241 $ 5,160
==================================================================
9. DISCONTINUED OPERATIONS
In June 2001, the Company announced plans to sell its Label and Printed
Office Products operating segments. The Printed Office Products segment was
comprised of two separate businesses, Curtis 1000, Inc. and PrintXcel. The
Label and Printed Office Products segments were segregated from continuing
operations and reported as discontinued operations for all periods presented
through March 31, 2002. On February 22, 2002, the Company sold the stock of
Curtis 1000, Inc. for $40.0 million, including the assumption of debt. On
May 21, 2002, the Company sold the Label operating segment for $75.0
million. In June 2002, the Company decided that it would not sell PrintXcel.
Accordingly, PrintXcel has been reclassified to continuing operations for
all periods presented.
The reported loss on the disposition of the Label segment and Curtis 1000,
Inc. as of June 30, 2002 includes adjustments to the net realizable value of
these operations based on actual proceeds received, costs associated with
the dispositions, the earnings or losses from the operations through the
date of disposition and the related income tax expense.
Interest expense was allocated to the operating results included in the
calculation of the loss on disposal of discontinued operations based upon
the relative net assets of the Label operating segment and Curtis 1000, Inc.
This allocation of interest expense totaled $2.0 million and $5.6 million
for the three-months ended June 30, 2002 and 2001, respectively, and $3.7
million and $7.9 million for the six-months ended June 30, 2002 and 2001,
respectively.
11
Operating results of the discontinued operations are summarized as follows
(in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------
2002 2001 2002 2001
------------------------------------------------------------
Net sales:
Label $31,482 $ 57,637 $ 84,758 $ 113,145
Curtis 1000, Inc. - 41,435 22,788 87,049
------------------------------------------------------------
$31,482 $ 99,072 $107,546 $ 200,194
============================================================
Income (loss) from operations:
Label $ - $ (565) $ - $ (1,028)
Curtis 1000, Inc. - (1,343) - (3,588)
------------------------------------------------------------
- (1,908) - (4,616)
Income tax expense (benefit) - (572) - (1,634)
------------------------------------------------------------
Loss from discontinued operations, net
of tax benefit $ - $ (1,336) $ - $ (2,982)
============================================================
Loss on disposal of discontinued operations:
Label $(5,045) $(59,725) $ (8,545) $(59,725)
Curtis 1000, Inc. (166) (17,990) (892) (17,990)
------------------------------------------------------------
(5,211) (77,715) (9,437) (77,715)
Income tax benefit (5,058) (1,854) (1,285) (1,294)
------------------------------------------------------------
Loss on disposal, net of tax benefit $ (153) $(75,861) $ (8,152) $(76,421)
============================================================
The assets and liabilities of discontinued operations, which have been
reflected as net assets of discontinued operations in the December 31, 2001
condensed consolidated balance sheet, are summarized as follows (in
thousands):
DECEMBER 31,
2001
--------------
Label segment:
Current assets $ 46,285
Long-term assets 97,109
--------------
Total assets 143,394
Current liabilities 40,085
Long-term liabilities 3,909
--------------
Total liabilities 43,994
--------------
Net assets of the Label segment 99,400
Curtis 1000, Inc.:
Current assets 24,840
Long-term assets 37,103
--------------
Total assets 61,943
Current liabilities 18,657
Long-term liabilities 13,118
--------------
Total liabilities 31,775
--------------
Net assets of Curtis 1000, Inc. 30,168
--------------
Net assets of discontinued operations $129,568
==============
Assets primarily consist of accounts receivable, inventories, property and
equipment and deferred income taxes. Liabilities primarily consist of
accounts payable, accrued expenses, deferred income taxes and other
long-term liabilities. The net assets of discontinued operations presented
in the condensed consolidated balance sheet reflect
12
the write-down of the assets of these operations to estimated net realizable
value, the accrual of obligations associated with the divestitures and the
accrual of estimated losses to the expected date of disposal.
In connection with the proposed divestiture of the Company's PrintXcel
business in 2001, the Company reduced the carrying amounts of the net assets
of PrintXcel by $45.0 million to the expected net realizable value based on
estimated proceeds, net of costs associated with its planned disposition. As
a result of the Company's decision not to sell PrintXcel, it reversed a tax
benefit in the amount of $11.5 million that would not be realized and $1.1
million of expenses related to the sale that had been accrued but not
incurred. The net amount of these adjustments has been reported as
"Impairment on former discontinued operation" in the condensed consolidated
statements of operations.
10. ASSETS HELD FOR SALE
The Company's divestiture plans also include the sale of certain operations
that are not strategic to its Envelope and Commercial Printing segments. The
Company expects to complete the dispositions of these operations by
September 30, 2002. The following table presents the sales and operating
income of these operations for the three- and six-months ended June 30, 2002
and 2001 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
-------------------------------------------------------------------------------------------------------------
Sales $25,557 $29,180 $51,667 $57,796
Operating income 1,559 3,385 3,063 6,257
The assets of these operations at June 30, 2002 and December 31, 2001
totaled $61.0 million and $65.7 million, respectively, and are reported net
of $10.7 million and $13.3 million of related liabilities, respectively, as
"Net assets held for sale" in the accompanying condensed consolidated
balance sheets. Certain of these assets were written down to fair market
value during 2001 based on sales proceeds anticipated at the time. In the
quarter ended June 30, 2002, the Company recorded an impairment charge of
$2.8 million based on the sales proceeds currently anticipated on the sale
of certain assets of the commercial printing segment, and recorded an
additional $6.1 million as a result of the sale of the Company's filing
products division that closed in August 2002, for a total impairment on
assets held for sale of $8.9 million.
11. SEGMENT INFORMATION
The Company operates in three principal operating segments. The Commercial
Printing operating segment specializes in printing annual reports, brand
marketing collateral, catalogs, brochures, maps and guidebooks, calendars,
financial communications and CD packaging. The Envelope operating segment
manufactures customized and stock envelopes for billing and remittance,
direct mail advertising, filing systems, photo processing, medical records
and catalog orders. The Envelope segment is also a producer of specialty
packaging products and a manufacturer of stock products for the resale
market. The Printed Office Products operating segment produces customized
and stock labels, mailers, and printed business documents to small and
mid-size businesses generally through distributors of office products.
The following tables present certain business segment information for the
three- and six-months ended June 30, 2002 and 2001 as follows (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
- -----------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------
Net sales:
Commercial Printing $173,727 $206,714 $364,482 $418,750
Envelope 195,168 210,746 396,143 432,362
Printed Office Products 52,072 54,100 103,824 109,224
- -----------------------------------------------------------------------------------------------------------
Total $420,967 $471,560 $864,449 $960,336
===========================================================================================================
13
Operating income (loss):
Commercial Printing $ (6,240) $ 6,465 $ (8,696) $ 12,671
Envelope 19,319 21,506 39,070 44,632
Printed Office Products 5,319 5,757 9,822 11,543
Corporate (9,121) (7,362) (11,584) (15,861)
Impairments, restructuring and other charges (28,552) (28,191) (43,079) (28,856)
- -----------------------------------------------------------------------------------------------------------
Total $(19,275) $ (1,825) $(14,467) $ 24,129
===========================================================================================================
JUNE 30, DECEMBER 31,
2002 2001
- --------------------------------------------------------------------------------------------------
Identifiable assets (b):
Commercial Printing $598,599 $622,173
Envelope 511,952 537,747
Printed Office Products 139,683 144,334
Corporate 146,549 (10,614)
- --------------------------------------------------------------------------------------------------
Total 1,396,783 1,293,640
Net assets of discontinued operations - 129,568
Net assets held for sale 50,340 52,368
- --------------------------------------------------------------------------------------------------
Total $1,447,123 $1,475,576
==================================================================================================
<FN>
(a) Operating income is net of all costs and expenses directly related to
the operating segment involved. Corporate expenses include corporate
general and administrative expenses, lease expense, amortization
expense of other intangible assets and goodwill (in 2001), gains or
losses on disposal of assets and other miscellaneous expenses.
(b) Identifiable assets are accumulated by facility within each operating
segment. Certain operating assets, which are under lease, are reported
as operating segment assets for evaluation purposes. The net book value
of these assets has been eliminated by contra assets included with
corporate assets in order to reconcile identifiable assets with the
total assets of the Company. Corporate assets consist primarily of cash
and cash equivalents, other receivables, other assets and deferred tax
assets.
Intercompany sales for the three- and six-months ended June 30, 2002 were
$2.4 million and $9.2 million, respectively. Intercompany sales for the
three- and six-months ended June 30, 2001 were $10.6 million and $24.1
million, respectively. These amounts, which are eliminated in consolidation,
are excluded from reported net sales.
12. SUBSEQUENT EVENTS
On August 8, 2002, the Company sold the filing products division of its
Envelope segment for $36.7 million. The Company has recorded an impairment
loss of $6.1 million in connection with this divestiture. Net proceeds of
$31.5 million received from the sale of this operation were applied to the
revolving credit facility.
Subsequent to June 30, 2002, the Company was required to refinance a
sale/leaseback arrangement due to the fact that it was tied to the Company's
prior banking agreement that was replaced by the new Senior Secured Credit
Facility. In connection with the refinancing, the Company was required to
make a payment of $15.8 million that will be expensed in the Company's third
quarter. In addition, $5.5 million of the deferred costs associated with
this arrangement will be written-off.
14
13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In March 2002, Mail-Well I Corporation ("Issuer" or "MWI"), the Company's
wholly owned subsidiary, and the only direct subsidiary of the Company,
issued $350 million aggregate principal amount of 9 5/8% Senior Notes
("Senior Notes") due in 2012. The Senior Notes are guaranteed by all of the
U.S. subsidiaries (the "Guarantor Subsidiaries") of MWI, all of which are
wholly owned, and by Mail-Well, Inc. ("Parent Guarantor"). The guarantees
are joint and several, full, complete and unconditional. There are no
material restrictions on the ability of the Guarantor Subsidiaries to
transfer funds to MWI in the form of cash dividends, loans or advances,
other than ordinary legal restrictions under corporate law, fraudulent
transfer and bankruptcy laws.
In December 1998, MWI issued $300. million aggregate principal amount of
8 3/4% Senior Subordinated Notes ("Senior Subordinated Notes") due in 2008.
The Senior Subordinated Notes are guaranteed by Guarantor Subsidiaries and
by the 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. Curtis 1000, Inc. was, until it was
divested in the first quarter of 2002, a subsidiary of the Issuer and a
guarantor of the Senior Subordinated Notes. Curtis 1000, Inc. was not at any
time a guarantor of the Senior Notes. In order to provide a coherent
presentation in the following condensed consolidating financial information,
and because Curtis 1000, Inc. has been divested and is not a guarantor of
the Senior Subordinated Notes or the Senior Notes, Curtis 1000, Inc.'s
financial information is included in the non-guarantor information for all
periods presented. 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 remove the equity method investment in subsidiaries
and the equity in earnings of subsidiaries, intercompany payables and
receivables and other transactions between subsidiaries.
15
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
June 30, 2002
(Unaudited)
(in thousands)
COMBINED COMBINED
PARENT GUARANTOR NONGUARANTOR
GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED
--------- ------ ------------ ------------ ----- ------------
Current assets:
Cash and cash equivalents $ - $ 146,968 $ 612 $ 114 $ - $ 147,694
Accounts receivable, net - 50,913 127,644 22,557 - 201,114
Inventories, net - 49,122 47,457 14,585 - 111,164
Net assets held for sale - 27,514 22,826 - - 50,340
Note receivable from Issuer 147,436 - - - (147,436) -
Other current assets 98 40,515 41,220 2,959 - 84,792
-------- ---------- -------- -------- ----------- ----------
Total current assets 147,534 315,032 239,759 40,215 (147,436) 595,104
Investment in subsidiaries 189,302 187,837 27,529 - (404,668) -
Property, plant and equipment, net - 130,539 217,182 53,367 - 401,088
Goodwill and other intangible assets, net - 84,396 281,633 47,845 - 413,874
Note receivable from subsidiaries - 603,100 - - (603,100) -
Other assets, net 520 38,162 (4,618) 2,993 - 37,057
-------- ---------- -------- -------- ----------- ----------
Total assets $337,356 $1,359,066 $761,485 $144,420 $(1,155,204) $1,447,123
======== ========== ======== ======== =========== ==========
Current liabilities:
Accounts payable $ - $ 51,613 $ 83,860 $ 9,700 $ - $ 145,173
Other current liabilities 3,966 64,104 29,972 9,943 - 107,985
Intercompany payable (receivable) 3,659 80,939 (68,170) (16,428) - -
Note payable to Parent - 147,436 - - (147,436) -
Current portion of long-term debt 139,063 2,529 2,590 244 - 144,426
-------- ---------- -------- -------- ----------- ----------
Total current liabilities 146,688 346,621 48,252 3,459 (147,436) 397,584
Long-term debt - 788,185 6,682 - - 794,867
Note payable to Issuer - - 603,100 - (603,100) -
Deferred income taxes - 26,104 12,981 11,538 - 50,623
Other long-term liabilities - 12,732 3,954 573 - 17,259
-------- ---------- -------- -------- ----------- ----------
Total liabilities 146,688 1,173,642 674,969 15,570 (750,536) 1,260,333
Shareholders' equity 190,668 185,424 86,516 128,850 (404,668) 186,790
-------- ---------- -------- -------- ------------ ----------
Total liabilities and shareholders'
equity $337,356 $1,359,066 $761,485 $144,420 $(1,155,204) $1,447,123
======== ========== ======== ======== =========== ==========
16
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
December 31, 2001
(in thousands)
COMBINED COMBINED
PARENT GUARANTOR NONGUARANTOR
GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED
--------- ------ ------------ ------------ ----- ------------
Current assets:
Cash and cash equivalents $ - $ (1,589) $ 1,698 $ 785 $ - $ 894
Accounts receivable, net - 60,039 146,353 24,378 - 230,770
Inventories, net - 51,032 47,634 12,193 - 110,859
Net assets of discontinued operations - - 60,070 69,498 - 129,568
Net assets held for sale - 25,852 26,516 - - 52,368
Note receivable from Issuer 147,436 - - - (147,436) -
Other current assets 295 41,988 26,113 2,741 - 71,137
-------- ---------- --------- -------- ------------ ----------
Total current assets 147,731 177,322 308,384 109,595 (147,436) 595,596
Investment in subsidiaries 240,954 233,432 157,794 - (632,180) -
Property, plant and equipment, net - 151,735 216,975 53,568 - 422,278
Goodwill and other intangible assets, net - 96,585 269,097 45,734 - 411,416
Note receivable from subsidiaries - 749,400 - - (749,400) -
Other assets, net 1,023 29,925 31,227 2,992 (18,881) 46,286
-------- ---------- --------- -------- ------------ ----------
Total assets $389,708 $1,438,399 $ 983,477 $211,889 $ (1,547,897) $1,475,576
======== ========== ========= ======== ============ ==========
Current liabilities:
Accounts payable $ - $ 63,491 $ 88,056 $ 8,493 $ - $ 160,040
Other current liabilities 4,291 71,611 23,450 13,904 - 113,256
Intercompany payable (receivable) 4,477 190,395 (167,446) (27,426) - -
Note payable to Parent - 147,436 - - (147,436) -
Current portion of long-term debt 139,063 161,850 2,085 172 - 303,170
-------- ---------- --------- -------- ------------ ----------
Total current liabilities 147,831 634,783 (53,855) (4,857) (147,436) 576,466
Long-term debt - 523,247 19,708 9,096 - 552,051
Note payable to Issuer - - 749,400 - (749,400) -
Deferred income taxes - 28,287 48,882 11,224 - 88,393
Other long-term liabilities - 24,655 10,466 549 (18,881) 16,789
-------- ---------- --------- -------- ------------ ----------
Total liabilities 147,831 1,210,972 774,601 16,012 (915,717) 1,233,699
Shareholders' equity 241,877 227,427 208,876 195,877 (632,180) 241,877
-------- ---------- --------- -------- ------------ ----------
Total liabilities and shareholders' equity $389,708 $1,438,399 $ 983,477 $211,889 $ (1,547,897) $1,475,576
======== ========== ========= ======== ============ ==========
17
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Quarter Ended June 30, 2002
(Unaudited)
(in thousands)
COMBINED COMBINED
PARENT GUARANTOR NONGUARANTOR
GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED
--------- ------ ------------ ------------ ----- ------------
Net sales $ - $ 137,506 $ 242,870 $ 40,591 $ - $ 420,967
Cost of sales - 114,145 199,210 28,773 - 342,128
-------- ---------- --------- -------- -------- ----------
Gross profit - 23,361 43,660 11,818 - 78,839
Other operating expenses 29 21,409 43,990 4,134 - 69,562
Restructuring and other charges - 7,306 949 1,019 - 9,274
Impairment charges - 6,061 13,217 - 19,278
-------- ---------- --------- -------- -------- ----------
Operating income (loss) (29) (11,415) (14,496) 6,665 - (19,275)
Other expense (income):
Interest expense 1,262 21,752 12,691 (61) (16,671) 18,973
Other expense (income) (1,500) (15,201) 125 (50) 16,671 45
-------- ---------- --------- -------- -------- ----------
Income (loss) before income taxes and
equity in undistributed earnings of
subsidiaries 209 (17,966) (27,312) 6,776 - (38,293)
Provision (benefit) for income taxes - (6,904) (1,051) 2,369 - (5,586)
-------- ---------- --------- -------- -------- ----------
Income (loss) before equity in
undistributed earnings of subsidiaries 209 (11,062) (26,261) 4,407 - (32,707)
Equity in undistributed earnings of
subsidiaries (34,554) (22,121) 4,070 - 52,605 -
-------- ---------- --------- -------- -------- ----------
Income (loss) before discontinued
operations and extraordinary items (34,345) (33,183) (22,191) 4,407 52,605 (32,707)
Income (loss) on disposal, net of tax
benefit - - 187 (340) - (153)
Extraordinary loss, net of tax benefit (5,362) - - - (5,362)
-------- ---------- --------- -------- -------- ----------
Net income (loss) $(34,345) $ (38,545) $ (22,004) $ 4,067 $ 52,605 $ (38,222)
======== ========== ========= ======== ======== ==========
18
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Quarter Ended June 30, 2001
(Unaudited)
(in thousands)
COMBINED COMBINED
PARENT GUARANTOR NONGUARANTOR
GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED
--------- ------ ------------ ------------ ----- ------------
Net sales $ - $117,231 $311,648 $ 42,681 $ - $471,560
Cost of sales - 94,770 244,972 30,950 - 370,692
-------- -------- -------- -------- -------- --------
Gross profit - 22,461 66,676 11,731 - 100,868
Other operating expenses 92 17,765 52,295 4,350 - 74,502
Restructuring and other charges - 15,725 3,658 1 - 19,384
Impairment loss on assets held for sale - - 8,807 - - 8,807
-------- -------- -------- -------- -------- --------
Operating income (loss) (92) (11,029) 1,916 7,380 - (1,825)
Other expense (income):
Interest expense 1,739 19,476 13,984 1,244 (19,980) 16,463
Other expense (income) (1,978) (17,625) 116 8 19,980 501
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes and equity
in undistributed earnings of subsidiaries 147 (12,880) (12,184) 6,128 - (18,789)
Provision (benefit) for income taxes - (1,775) (3,595) 1,909 - (3,461)
-------- -------- -------- -------- -------- ---------
Income (loss) before equity in undistributed
earnings of subsidiaries 147 (11,105) (8,589) 4,219 - (15,328)
Equity in undistributed earnings of
subsidiaries (92,672) (78,913) (28,733) - 200,318 -
-------- -------- -------- -------- -------- --------
Income before discontinued operations (92,525) (90,018) (37,322) 4,219 200,318 (15,328)
Loss on disposal, net of tax benefit - - (42,483) (33,378) - (75,861)
Income (loss) from discontinued operations, - - 1,318 (2,654) - (1,336)
-------- -------- -------- -------- -------- --------
net of tax benefit
Net income (loss) $(92,525) $(90,018) $(78,487) $(31,813) $200,318 $(92,525)
======== ======== ======== ======== ======== ========
19
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six-months ended June 30, 2002
(Unaudited)
(in thousands)
COMBINED COMBINED
PARENT GUARANTOR NONGUARANTOR
GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED
--------- ------ ------------ ------------ ----- ------------
Net sales $ - $278,380 $504,026 $82,043 $ - $864,449
Cost of sales - 227,640 411,886 58,056 - 697,582
-------- -------- -------- ------- -------- --------
Gross profit - 50,740 92,140 23,987 - 166,867
Other operating expenses 34 40,935 88,842 8,444 - 138,255
Restructuring and other charges - 20,720 2,061 1,019 - 23,800
Impairment charges - 6,061 13,217 - - 19,278
-------- -------- -------- ------- -------- --------
Operating income (loss) (34) (16,976) (11,980) 14,524 - (14,466)
Other expense (income):
Interest expense 3,000 39,414 26,913 (61) (35,388) 33,878
Other expense (income) (3,477) (31,687) 211 (98) 35,388 337
-------- -------- -------- ------- -------- --------
Income (loss) before income taxes and
equity in undistributed earnings of
subsidiaries 443 (24,703) (39,104) 14,683 - (48,681)
Provision (benefit) for income taxes - (9,594) (2,437) 4,903 - (7,128)
-------- -------- -------- ------- -------- --------
Income (loss) before equity in
undistributed earnings of subsidiaries 443 (15,109) (36,667) 9,780 - (41,553)
Equity in undistributed earnings of
subsidiaries (56,396) (34,919) 4,070 - 87,245 -
-------- -------- -------- ------- -------- --------
Income (loss) before discontinued
operations and extraordinary items (55,953) (50,028) (32,597) 9,780 87,245 (41,553)
Loss on disposal, net of tax benefit
- - (8,862) 710 - (8,152)
Extraordinary loss, net of tax benefit - (10,125) - - - (10,125)
-------- -------- -------- ------- -------- --------
Net income (loss) $(55,953) $(60,153) $(41,459) $10,490 $ 87,245 $(59,830)
======== ======== ======== ======= ======== ========
20
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
Six-months ended June 30, 2001
(Unaudited)
(in thousands)
COMBINED COMBINED
PARENT GUARANTOR NONGUARANTOR
GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED
--------- ------ ------------ ------------ ----- ------------
Net sales $ - $230,054 $638,968 $ 91,314 $ - $960,336
Cost of sales - 184,931 504,242 66,826 - 755,999
-------- -------- -------- -------- -------- --------
Gross profit - 45,123 134,726 24,488 - 204,337
Other operating expenses 183 35,716 105,928 9,525 - 151,352
Restructuring and other charges - 15,876 4,326 (153) - 20,049
Impairment loss on assets held for sale - - 8,807 - - 8,807
-------- -------- -------- -------- -------- --------
Operating income (loss) (183) (6,469) 15,665 15,116 - 24,129
Other expense (income):
Interest expense 3,477 38,244 28,515 3,495 (39,960) 33,771
Other expense (income) (3,953) (34,907) (113) (3) 39,960 984
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes and equity
in undistributed earnings of subsidiaries 293 (9,806) (12,737) 11,624 - (10,626)
Provision (benefit) for income taxes - (429) (5,718) 5,021 - (1,126)
-------- -------- -------- -------- -------- --------
Income (loss) before equity in undistributed
earnings of subsidiaries 293 (9,377) (7,019) 6,603 - (9,500)
Equity in undistributed earnings of
subsidiaries (89,196) (77,165) (20,400) - 186,761 -
-------- -------- -------- -------- -------- --------
Income (loss) before discontinued operations (88,903) (86,542) (27,419) 6,603 186,761 (9,500)
Loss from discontinued operations, net of tax - - 103 (3,085) - (2,982)
Loss on disposal, net of tax benefit - - (43,043) (33,378) - (76,421)
-------- -------- -------- -------- -------- --------
Net income (loss) $(88,903) $(86,542) $(70,359) $(29,860) $186,761 $(88,903)
======== ======== ======== ======== ======== ========
21
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
June 30, 2002
(Unaudited)
(in thousands)
COMBINED COMBINED
PARENT GUARANTOR NONGUARANTOR
GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES ELIM. CONSOLIDATED
--------- ------ ------------ ------------ ----- ------------
CASH FLOWS FROM OPERATING ACTIVITIES $ (18) $ (12,105) $ 16,409 $ 95,104 $(85,039) $ 14,351
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition costs - (1,021) - - - (1,021)
Capital expenditures - (1,814) (17,849) (1,746) - (21,409)
Proceeds from divestitures, net - 96,887 - - - 96,887
Proceeds from the sale of assets - 5,940 113 - - 6,053
-------- --------- -------- -------- -------- ---------
Net cash provided by (used in)
investing activities - 99,992 (17,736) (1,746) - 80,510
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance 18 - - - - 18
Proceeds from long-term debt - 706,288 - - - 706,288
Repayments of long-term debt - (612,629) (7,469) (94,055) 85,039 (629,114)
Debt issuance costs - (16,574) - - - (16,574)
-------- --------- -------- -------- -------- ---------
Net cash provided by (used in)
financing activities 18 77,085 (7,469) (94,055) 85,039 60,618
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - - (129) - (129)
NET CASH USED IN DISCONTINUED OPERATIONS - - (8,245) (305) - (8,550)
-------- --------- -------- -------- -------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS - 164,972 (17,041) (1,131) - 146,800
BALANCE AT BEGINNING OF YEAR - (18,004) 17,653 1,245 - 894
-------- --------- -------- -------- -------- ---------
BALANCE AT END OF YEAR $ - $ 146,968 $ 612 $ 114 $ - $ 147,694
======== ========= ======== ======== ======== =========
22
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
June 30, 2001
(Unaudited)
(in thousands)
COMBINED COMBINED
PARENT GUARANTOR NONGUARANTOR
GUARANTOR ISSUER SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
--------- ------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES $ (6) $ 20,468 $(12,447) $ 76,516 $ 84,531
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition costs - (3,844) - - (3,844)
Capital expenditures - (5,848) (10,319) (1,041) (17,208)
Proceeds from sale of assets - 2,592 362 386 3,340
-------- --------- -------- -------- ---------
Net cash provided by (used in) investing
activities - (7,100) (9,957) (655) (17,712)
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes due to accounts receivable
securitization, net - - - (75,000) (75,000)
Proceeds from common stock issuance 6 - - - 6
Proceeds from long-term debt - 357,013 - 4,517 361,530
Repayments of long-term debt - (368,923) (3,823) (5,440) (378,186)
Debt issuance costs - (2,260) - - (2,260)
-------- --------- -------- -------- ---------
Net cash provided by financing activities 6 (14,170) (3,823) (75,923) (93,910)
EFFECT OF EXCHANGE RATE CHANGES ON CASH - - - (22) (22)
CASH FLOWS FROM DISCONTINUED OPERATIONS - - 27,402 733 28,135
-------- --------- -------- -------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS - (802) 1,175 649 1,022
BALANCE AT BEGINNING OF YEAR - 30 441 118 589
-------- --------- -------- -------- ---------
BALANCE AT END OF YEAR $ - $ (772) $ 1,616 $ 767 $ 1,611
======== ========= ======== ======== =========
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
CORPORATE OVERVIEW
In 2001, we adopted a strategy to focus on our two primary businesses -
envelopes and commercial printing - and announced plans to divest our label
and printed office products businesses and certain operations not strategic
to our envelope and commercial printing businesses. In addition to the
planned divestitures, we initiated a restructuring program to consolidate
manufacturing facilities in our three businesses to improve our competitive
position and several other initiatives to significantly improve operations,
reduce costs and increase marketing effectiveness.
In February 2002, we sold Curtis 1000, Inc., a business included in our
printed office products business, and in May 2002, we sold our label
business. As of June 2002, we had not received an offer for PrintXcel, also
part of our printed office products business, that we considered consistent
with its value. Because PrintXcel generates reliable cash flow and a
satisfactory return on assets we concluded that it was not in the best
interest of the Company to sell this business and we discontinued our
efforts to do so. This business will now be an integral part of our strategy
of expanding our print products and services to a larger customer base.
On August 8, 2002, we sold the filing products division of our envelope
business. We are continuing our efforts to sell certain non-strategic assets
in our commercial printing business.
Mail-Well is the world's largest manufacturer of envelopes. We produce
approximately 43 billion envelopes annually in our 40 envelope manufacturing
facilities located throughout the United States and Canada. Approximately
84% of these envelopes are customized specifically for our customers for use
in billing and remittance, direct mail advertising and specialty packaging.
The remaining 16% are stock envelopes sold into the resale market.
We are also one of the largest commercial printers in the United States. We
operate 29 printing plants located strategically throughout the United
States and one in Canada. We specialize in high impact printing, in which we
print a wide range of premium printed products for national and regional
customers, including advertising literature, corporate identity materials,
annual reports, car brochures, calendars, greeting cards, brand marketing
collateral, catalogs, maps, CD packaging and direct mail. We also produce
general commercial printing for local and regional customers.
In addition, we operate a printed office products business. This business,
which operates 12 manufacturing facilities throughout the United States, is
a leading supplier of customized and stock labels, mailers and printed
business documents to small and mid-size businesses generally through
independent distributors of office products. The labels produced and sold by
our printed office products division do not compete with those produced and
sold by the now-divested label segment due to differences in customer base,
distribution channels and production methods.
CONSOLIDATED RESULTS OF OPERATIONS
The financial statements for all periods presented have been restated as
required by generally accepted accounting principles to report the results
of our label business and Curtis 1000, Inc. as discontinued operations. Our
PrintXcel business had also been reported as a discontinued operation prior
to the second quarter of 2002. Since this business is no longer held for
sale, the results of PrintXcel are now included in continuing operations.
The summary financial data set forth in the tables that follow present
reported amounts as well as comparable financial data for New Mail-Well. New
Mail-Well excludes the results of our label business and Curtis 1000, Inc.
and the results of the operations of our envelope and commercial printing
businesses that are held for sale, but contrary to prior presentations, New
Mail-Well now includes our PrintXcel business. In addition, New Mail-Well's
results exclude
24
restructuring, impairments and other charges reported in the condensed
consolidated statements of operations for the three- and six-months ended
June 30, 2002 and 2001.
The economic slowdown which began in 2001 has continued to adversely affect
the sales and margins of our businesses in 2002, especially the portion of
our commercial printing business related to print advertising, the direct
mail and resale segments of our envelope business, and the traditional
documents market of PrintXcel. We do not expect significant increases in
sales and margins until the markets we serve, especially advertising, direct
mail and resale, recover. In the meantime, we have continued to take steps
through our strategic initiatives and otherwise to reduce costs and improve
operations.
SALES
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
(dollars in thousands) 2002 2001 2002 2001
- -------------------------------------------------------------------------------
Reported $420,967 $471,560 $864,449 $960,336
New Mail-Well* $394,711 $451,256 $816,477 $920,907
- -------------------------------------------------------------------------------
<FN>
* Excludes sales of certain operations of our envelope and commercial
printing businesses held for sale and includes sales to discontinued
operations that are expected to continue. Sales to discontinued operations
included above prior to their divestiture were $0.7 million and $3.7 million
for the three- and six-months ended June 30, 2002 and $8.9 million and $18.4
million for the three- and six-months ended June 30, 2001.
New Mail-Well's sales in the second quarter of 2002 were $56.5 million, or
12.5%, below sales during the second quarter of 2001. For the first six
months of 2002, sales were $104.4 million, or 11.3%, below the comparable
period in 2001. We have seen no improvements in the key markets we serve,
specifically:
o Demand for commercial printing continues to be weak.
o Sales of envelopes into the resale and direct mail markets are below
levels a year ago.
o The market for traditional business documents produced by our printed
office products business continues to decline.
Reported sales during the three- and six-month periods ended June 30, 2002
compared to the prior year declined similarly to the sales of New Mail-Well
and were affected by the same market dynamics.
RESTRUCTURING AND OTHER CHARGES
In 2001, we began consolidating certain of our operations to eliminate
excess internal capacity, reduce costs and improve our long-term competitive
position. In addition, we have significantly reduced the size of certain of
our facilities in response to current market conditions. The restructuring
charge related to these plans totaled $20.7 million in 2002, of which $9.0
million were incurred in the second quarter of 2002. The following table and
discussion present the details of this restructuring, as well as other
charges recorded during the six months ended June 30, 2002:
25
COMMERCIAL PRINTED OFFICE
(IN THOUSANDS) ENVELOPE PRINTING PRODUCTS CORPORATE TOTAL
- --------------------------------------------------------------------------------------------------------------------
Employee separation and related
employee expenses $ - $1,041 $ 507 $ - $ 1,548
Employee training expenses 4,531 - - - 4,531
Other exit costs 3,657 - 300 - 3,957
Asset impairment charges, net 4,730 - 240 - 4,970
Project management expenses 5,656 - - - 5,656
- --------------------------------------------------------------------------------------------------------------------
Total restructuring costs 18,574 1,041 1,047 - 20,662
- --------------------------------------------------------------------------------------------------------------------
Other charges 985 1,414 - 739 3,138
- --------------------------------------------------------------------------------------------------------------------
Total restructuring and other charges $19,559 $2,455 $1,047 $ 739 $23,800
====================================================================================================================
In addition to the three manufacturing facilities consolidated in 2001, our
envelope business has consolidated six facilities in 2002 and will
consolidate one additional operation during the third quarter of 2002. When
this consolidation plan is completed, we will have closed ten envelope
plants and substantially reduced excess internal capacity and improved
utilization of equipment and resources at the remaining 39 plants we operate
in the United States and Canada. In 2001, we accrued the separation and
related employee costs covering the 920 employees expected to be terminated
over the course of this project. As of June 30, 2002, 666 employees had been
separated. Employee training expenses include the costs to train the new
employees that have been hired at the plants that are absorbing the
production of the plants being closed. The training programs for these
employees are between three and nine months in duration. Other exit costs
include the expenses incurred to move and reinstall equipment, and the cost
incurred to restore buildings to the condition required by lease agreements
or to prepare them for sale. Project management expenses are primarily
consulting fees and related expenses incurred to assist management in
managing the consolidation project. Consultants were used to assist in such
tasks as capacity planning, workflow planning, production scheduling and
change management. The write-downs recorded for property and equipment taken
out of service or sold as a result of the plant consolidations are reported
net of $6.2 million of proceeds received from the sales of those assets.
Our commercial printing business completed the consolidation of its
operations in the Philadelphia, Pennsylvania area in 2001. In addition, in
response to changes in market conditions, commercial printing has made
significant changes to its cost structure by reducing its fixed costs. The
severance costs incurred as a result of eliminating 136 overhead positions
totaled $819,000.
Our Printed Office Products business closed a manufacturing facility in 2002
to eliminate excess internal capacity and reduce costs. Severance incurred
as a result of this plant closure were $134,000 covering 19 employees.
Expenses were also incurred to prepare the building for sale and to write
assets down to fair market value. In addition, Printed Office Products has
reduced headcount at certain of its other facilities in response to market
conditions. Severance costs incurred in connection with these reductions,
covering 128 employees, totaled $249,000.
In 2001, we initiated several programs to significantly improve operations
and marketing effectiveness. These programs include the implementation of
best practices, the standardization of costing and pricing systems in the
envelope and commercial printing businesses and the alignment of equipment
and services to better serve our customers and markets. We incurred $2.4
million in expenses for outside assistance in order to expedite the
implementation of these programs. In addition, the Company incurred
consulting fees of $587,000 related to tax matters that arose as a result of
the divestitures. These expenses have been reported as other charges.
We expect to complete our strategic initiatives by the end of 2002 and
anticipate further charges of approximately $10 million. Our current
estimate of the total cost of our restructuring program is $76 million, of
which
26
approximately $20 million will be non-cash charges and $56 million will be
cash charges. This is well below our original estimate of $98 million.
OPERATING INCOME (LOSS)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
(dollars in thousands) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------
Reported
Operating income (loss) $(19,275) $(1,825) $(14,466) $24,129
Operating margin (5%) 0% (2%) 3%
- --------------------------------------------------------------------------------------------------
New Mail-Well
Operating income* $ 11,557 $22,947 $ 28,555 $46,971
Operating margin 3% 5% 3% 5%
- --------------------------------------------------------------------------------------------------
<FN>
* Excludes operating income of certain operations of our envelope and
commercial printing businesses held for sale and impairment, restructuring
and other charges.
New Mail-Well's operating income declined $11.4 million, or 50%, in the
second quarter of 2002 compared to the same quarter of 2001. The reduction
in operating income was due to the following:
o Gross profit in the second quarter of 2002 was $76.6 million compared
to $92.5 million in the second quarter of 2001. As a percentage of
sales, gross profit declined 1.1%. The reduction in gross profit due to
lower sales was approximately $20 million. Lower prices for our
products due to increased competition impacted gross profit by
approximately $2.2 million. Our consolidation program and other cost
reduction programs have resulted in reductions in fixed manufacturing
costs of $6.1 million in the second quarter of 2002 compared to the
second quarter of 2001.
o Selling expenses were approximately $1.0 million lower in the second
quarter of 2002 than in the prior year due to lower sales commissions.
o Amortization expense was $3.6 million lower in the second quarter of
2002 due to the adoption of Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets, on January 1, 2002,
which eliminated the amortization of goodwill.
The reported loss of $13.2 million in the second quarter includes three
impairment charges. We recorded an additional impairment charge on PrintXcel
of $10.4 million. This charge was primarily the reversal of a tax benefit
recorded when PrintXcel's assets were written down to net realizable value.
We also recorded an impairment of $6.1 million on our filing products
business, which was sold in August 2002, and an impairment of $2.8 million
on our other assets held for sale based on a letter of intent received from
the prospective buyer. In addition, the reported loss includes restructuring
and other charges of $9.3 million.
New Mail-Well's operating income for the six-months ended June 30, 2002
declined $18.4 million, or 39%, from the comparable six-month period of
2001. This decline was due to the following:
o Gross profit was $158.1 million compared to $188.3 million during the
six-months ended June 30, 2001. The reduction in gross profit due to
lower sales was approximately $37 million. Lower pricing due to
increased competition also reduced gross profit by approximately $9
million. Gross profit as a percent of sales declined 1% despite
reductions in fixed costs of approximately $15.7 million.
o Selling and administrative expenses have been reduced approximately $5
million as a result of lower commissions and cost reduction programs in
our administrative functions.
o Amortization expense was down $6.9 million due to the implementation of
Statement 142.
The reported operating loss of $8.4 million for the six-months ended June
30, 2002 reflects the impairment charges discussed above and restructuring
and other charges of $23.8 million.
27
INTEREST EXPENSE
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
(dollars in thousands) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------
Total interest expense $20,966 $20,134 $39,448 $41,667
Less: Allocation to discontinued operations (1,993) (3,671) (5,570) (7,896)
- --------------------------------------------------------------------------------------------------------
Reported interest expense $18,973 $16,463 $33,878 $33,771
- --------------------------------------------------------------------------------------------------------
New Mail-Well $19,310 $16,842 $35,491 $34,637
During the quarter ended June 30, 2002, interest before allocations to
discontinued operations increased 4% due to higher average interest rates
despite lower outstanding debt. Our weighted average outstanding debt during
the second quarter of 2002 was $943.2 million compared to $992.2 million in
the second quarter of 2001. Our weighted average interest rate was 8.08% in
the second quarter of 2002 compared to 7.49% in 2001. The increase in the
weighted average interest rate was due primarily to the issuance of $350
million of 9 5/8% senior notes on March 13, 2002. Since a significant
portion of the proceeds of the senior notes was used to repay bank debt,
which accrued interest at a lower variable rate, our weighted average
interest rate will continue to be higher than the prior year.
For the six months ended June 30, 2002, interest expense before allocations
to discontinued operations was lower than the comparable period in 2001.
Interest in 2002 reflects our weighted average outstanding debt of $945.0
million in 2002 compared to $999.6 million in 2001 and our weighted average
interest rate of 7.84% in 2002 compared to 7.73% in 2001.
Reported interest excludes an allocation of interest expense to discontinued
operations based on the net assets of those operations relative to the net
asset of the Company.
Interest expense for New Mail-Well was calculated on a pro-forma basis as if
the actual net proceeds from the sales of our Label operating segment and
Curtis 1000, Inc. were received on January 1, 2001. Interest expense
determined on this basis is greater than reported interest expense.
INCOME TAXES
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
(dollars in thousands) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------
Reported
Provision (benefit) for income taxes $(5,586) $(3,461) $(7,128) $(1,126)
Effective tax rate 15% 18% 15% 11%
- ------------------------------------------------------------------------------------------------------
New Mail-Well
Provision (benefit) for income taxes $(3,280) $ 2,005 $28,556 $46,840
Effective tax rate 42% 46% 42% 46%
- ------------------------------------------------------------------------------------------------------
New Mail-Well's effective tax rate for 2002 is estimated to be 42% for the
tax year ended December 31, 2002 in which we have projected taxable income,
four percentage points lower than in 2001. The effective tax rate in 2001
reflected the impact of nondeductible goodwill amortization.
28
The reported effective tax rates for 2002 and 2001 reflect the tax impacts
of the permanent differences related to the impairments.
INCOME (LOSS) FROM CONTINUING OPERATIONS AND INCOME (LOSS) PER SHARE -
ASSUMING DILUTION
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
(dollars in thousands) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
Reported $(32,707) $(15,328) $(41,553) $(9,500)
New Mail-Well $ (4,534) $ 2,343 $ (4,248) $ 5,427
- -------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations per share
Reported $ (0.69) $ (0.32) $ (0.87) $ (0.20)
New Mail-Well $ (0.10) $ 0.05 $ (0.09) $ 0.11
- -------------------------------------------------------------------------------------------------------------
The results for New Mail-Well for the three- and six-months ended June 30,
2002 compared to the comparable periods of the prior year were due to lower
sales, lower margins and higher interest expense partially offset by lower
fixed costs and lower amortization expense.
Our reported loss from continuing operations for the second quarter of 2002
includes impairment, restructuring and other charges of $28.6 million. In
the second quarter of 2001, impairment, restructuring and other charges
totaled $28.2 million. For the six-months ended June 30, 2002, the reported
loss includes impairment, restructuring and other charges of $43.1 million
compared to $28.9 million in the same period of 2001.
LOSS FROM DISCONTINUED OPERATIONS
In May 2002, we completed the sale of our label segment for $75 million
resulting in an additional loss on the disposal of this segment of $5.1
million. Adjustments to the tax impact of this sale and the sale of Curtis
1000, Inc., which was completed in February 2002, reduced the reported loss
from discontinued operations in the second quarter to $153,000. The loss
from discontinued operations for the six-months ended June 30, 2002 was $8.2
million. The loss on discontinued operations reflects the proceeds received
from our divestitures of Curtis 1000, Inc. and our label segment, net of
related selling expenses and tax benefits. Adjustments of this loss may
occur should expenses be different than those estimated or should there be
additional revisions to the tax impact of the sales.
EXTRAORDINARY LOSS
Results for the quarter ended June 30, 2002 include an extraordinary charge
of $5.4 million, or $0.12 per share. This represents the write-off of the
remaining deferred financing fees related to our bank credit facility that
was refinanced during the second quarter. The portion of these fees related
to the term debt repaid with the proceeds from the sale of our senior notes
and from the sale of Curtis 1000, Inc. was written-off in the first quarter
of 2002. The total extraordinary loss recorded as a result of the write-off
of deferred financing fees in 2002 was $10.1 million.
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE - ASSUMING DILUTION
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
(dollars in thousands) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------
Net income (loss)
Reported $(38,222) $(92,525) $(59,830) $(88,903)
New Mail-Well $ (4,534) $ 2,343 $ (4,248) $ 5,427
- -----------------------------------------------------------------------------------------------------------
29
Net income (loss) per share
Reported $ (0.80) $ (1.95) $ (1.26) $ (1.87)
New Mail-Well $ (0.10) $ 0.05 $ (0.09) $ 0.11
- -----------------------------------------------------------------------------------------------------------
The net losses reported for the second quarter and for the three- and
six-months ended June 30, 2002 were due to the losses from continuing
operations, the impairment charges, restructuring and other charges, the
loss on discontinued operations and the extraordinary loss.
BUSINESS SEGMENTS
ENVELOPE
The following table presents the reported sales and operating income of our
envelope business, as well as sales and operating income excluding the
results of operations that are held for sale and restructuring and other
charges recorded during the three- and six-month periods ended June 30, 2002
and 2001 ("New Envelope").
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
(dollars in thousands) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------
Net sales
Reported $195,168 $210,746 $396,143 $432,362
New Envelope* $178,120 $197,184 $363,288 $406,186
- ----------------------------------------------------------------------------------------------
Operating income
Reported $ 11,773 $ 7,718 $ 19,511 $ 30,693
New Envelope* $ 18,163 $ 19,568 $ 36,481 $ 40,571
- ----------------------------------------------------------------------------------------------
<FN>
* Excludes sales and operating income of the operations of the envelope
business held for sale and restructuring and other charges. Sales include
sales to discontinued operations that are expected to continue. Intercompany
sales, including sales to discontinued operations prior to their
divestiture, were $0.4 million and $3.2 million for the three- and
six-months ended June 30, 2002 and $6.0 million and $13.4 million for the
three- and six-months ended June 30, 2001.
New Envelope's sales in the second quarter of 2002 were down $19.1 million,
or 9.7% from the second quarter of the prior year. We continue to experience
lower sales in the direct mail segment of our market. Sales to our direct
mail customers were down approximately $8.0 million in the quarter. Demand
in the resale segment of our market, which began to soften in the second
half of 2001, continues to be weak. Sales to our merchant and office
products customers were down approximately $7 million. Consistent with an
overall weak envelope market, sales of our transactional and specialty
envelopes were also down in the quarter.
For the first half of 2002, New Envelope's sales were $42.9 million, or
10.6%, below the first half of 2001. Sales to direct mail customers were
down approximately $18 million and sales to our merchant and office products
customers were approximately $15 million below the comparable period of
2001.
Operating income of New Envelope declined $1.4 million, or 7.2% in the
second quarter. Contribution and gross profit as a percentage of sales were
both higher in the second quarter of 2002 than in the second quarter of
2001. Improvements in operating efficiencies and reductions in fixed costs
resulted in savings of $4.5 million in the quarter. These improvements were
a direct result of our consolidation program and other cost reduction
initiatives; however, they were not sufficient to offset the $5.9 million of
contribution lost due to lower sales.
On a year-to-date basis, New Envelope's operating income has declined
$4.1 million, or 10.1%. Contribution lost due to lower sales accounts for
approximately $13.1 million of the decline in earnings. Margins are down
approximately $2.9 million from the comparable period of 2001 due to
competitive pressures and lower sales of higher value added products. In
addition, certain plants absorbing work from plants closed as a result of
our
30
consolidation program experienced inefficiencies during the early part of
the year. Fixed costs are $11.9 million lower in the first half of 2002 than
in the first half of 2001.
Reported results of our envelope business are significantly lower due to the
$7.5 million and $19.6 million of restructuring and other charges recorded
during the three- and six-months ended June 30, 2002, respectively.
COMMERCIAL PRINTING
The following table presents the reported sales and operating income of our
commercial printing business, as well as sales and operating income
excluding the results of its operations that are held for sale and
restructuring and other charges recorded during the three- and six-months
ended June 30, 2002 and 2001("New Commercial Printing").
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
(dollars in thousands) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------
Net sales
Reported $173,727 $206,714 $364,482 $418,750
New Commercial Printing* $166,389 $198,800 $351,245 $403,864
- ----------------------------------------------------------------------------------------------
Operating income (loss)
Reported $ (7,688) $ 4,512 $(11,151) $ 10,873
New Commercial Printing* $ (6,642) $ 5,018 $ (9,169) $ 10,475
- ----------------------------------------------------------------------------------------------
<FN>
*Excludes sales and operating income of the operations of the commercial
printing business held for sale and restructuring and other charges.
Sales include sales to discontinued operations that are expected to
continue. Intercompany sales, including sales to discontinued operations
prior to their divestiture, were $0.7 million and $2.4 million for the
three- and six-months ended June 30, 2002 and $1.7 million and $3.4 million
for the three- and six-months ended June 30, 2001.
Sales of New Commercial Printing in the second quarter of 2002 were $32.4
million, or 16.3%, below second quarter sales in 2001. Demand for commercial
printing continues to be weak. We have yet to see any rebound in advertising
by our customers, which impacts about 50% of our commercial printing sales.
Sales at all of our commercial printing plants were either flat or lower
compared to the second quarter of 2001. The sales decline is explained as
follows:
o Sales in our web plants were down $17 million in the second quarter
compared to the second quarter of last year. Our web plants
typically produce jobs that require long runs. Demand for
commercial printing suited to these presses was especially weak in
the second quarter. In addition, our calendar business, which is
traditionally strong in the second quarter, has shifted to the
third quarter.
o Sales in the Philadelphia market are down approximately $8 million
from the prior year. This decline was due in part to our closure of
a plant in Philadelphia in April 2001. Much of the work produced by
this plant was marginal work, which could not be produced
profitably at any of our other facilities in the Mid-Atlantic area.
Sales were also off as a result of the consolidation of our other
facilities in the Philadelphia area in October 2001, because some
of our customers did not move their work to the new facility.
o Sales of our operation in Seattle were down $2 million in the
quarter. This decline is due directly to our customers in the
telecommunications and technology industries, which have reduced
spending for commercial printing significantly.
o Sales of our operation specializing in direct mail printing were
$1 million lower this quarter than in the second quarter of 2001.
On a year-to-date basis, sales of New Commercial Printing were lower than
the comparable period of 2001 by $52.6 million, or 13.0%. The trends seen in
the second quarter were also prevalent on a year-to-date basis. The sales
decline in the first half of the year can be explained by the factors
discussed above.
New Commercial Printing recorded an operating loss of $6.6 million in the
second quarter of 2002. This decline from operating income of $5 million in
the second quarter of 2001 was due to the $10.3 million of contribution lost
31
on lower sales. In addition to lower sales, competition for work continues
to put pressure on margins, which have declined 1.6% from the second quarter
of 2001. The impact of the lower margins on profitability was $2.6 million.
Cost reduction programs have resulted in lower fixed costs of $1.3 million.
On a year-to-date basis, New Commercial Printing recorded an operating loss
of $9.2 million in 2002 compared to operating income of $10.5 million during
the comparable period of 2001. The contribution lost due to lower sales
totals approximately $16.0 million. The loss in profitability due to lower
margins was $6.0 million. Fixed costs have been reduced $2.3 million from
the comparable period of 2001.
PRINTED OFFICE PRODUCTS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
(dollars in thousands) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------
Net sales
Reported $52,072 $54,100 $103,824 $109,224
New Printed Office Products* $52,238 $56,531 $105,504 $114,918
- ------------------------------------------------------------------------------------------------
Operating income
Reported $ 5,151 $ 4,051 $ 8,775 $ 9,168
New Printed Office Products* $ 5,319 $ 5,757 $ 9,822 $ 11,543
- ------------------------------------------------------------------------------------------------
<FN>
* Sales of New Printed Office Products include sales to discontinued
operations that are expected to continue. Operating income excludes
restructuring and other charges. Intercompany sales, including sales to
discontinued operations prior to their divestiture, were $0.2 million and
$1.7 million for the three- and six-months ended June 30, 2002 and $2.4
million and $5.7 million for the three- and six-months ended June 30, 2001.
Sales of New Printed Office Products were down 7.6% in the second quarter
compared to the second quarter of 2001. On a year-to-date basis, the sales
decline was 8.2% from the comparable period of 2001. These declines were due
primarily to the decline in the demand for the traditional business forms.
The demand for traditional business forms has been declining for several
years due to the adoption of laser printing technology by businesses.
Operating income of New Printed Office Products was down 7.6% in the second
quarter of 2002 compared to the second quarter of 2001. Improvements in the
mix of products sold to higher value added products and control of fixed
costs have enabled this business to improve its gross profit as a percentage
of sales by 1%. These gains, however, were offset by $1.7 million of
contribution lost due to lower sales.
On a year-to-date basis, operating income was down $1.7 million, or 15%,
from the first six months of 2001. The decline in profitability was due to
the contribution lost on lower sales in the first half of 2002 partially
offset by lower fixed costs and improved margins due to a change in the
overall product mix towards an increased percentage of higher value added
products.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 2002, we restructured a significant portion
of our outstanding debt. In March 2002, we sold $350 million of 9 5/8%
senior notes due 2012. We used the net proceeds from this offering to repay
$197.0 million of our bank term debt and $9.2 million of other debt. The
remaining proceeds of this offering have been invested to provide the
liquidity needed for the repayment of our convertible debt of $139.1 million
in November 2002.
Also in March 2002, we applied $20.5 million of the proceeds received from
the sale of Curtis 1000, Inc. to the repayment of our bank term debt. In May
2002, we applied $67.0 million of proceeds received from the sale of our
label business to the repayment of our bank term debt.
In June 2002, we entered into a three-year $300 million senior secured
credit facility with a syndicate of banks. The purpose of this new facility
was to enable the refinancing of our existing bank term debt and secure
financing
32
for ongoing working capital needs and other general corporate purposes.
Loans made under this facility are issued on a revolving basis and are
subject to availability and a borrowing base. Loans bear interest at a base
rate or LIBOR, plus a margin, and are secured by substantially all of the
Company's domestic assets.
Cash flow from continuing operations was $14.4 million in the first half of
2002 compared to $84.5 million in the first half of 2001. Capital
expenditures totaled $21.4 million in the first half of 2002 compared to
$17.2 million in the first half of 2001. In addition, we made a $1.0 million
contractual payment on a small acquisition that was consummated in the first
quarter of 2001 for $3.9 million.
The following table summarizes our cash obligations as of June 30, 2002:
PAYMENTS DUE BY YEAR
--------------------
(in thousands) YEAR 1 YEARS 2 AND 3 YEARS 4 AND 5 THEREAFTER TOTAL
- -----------------------------------------------------------------------------------------------------------
Long-term debt $144,426 $137,588 $ 1,654 $655,625 $ 939,293
Operating leases 35,080 57,626 42,628 32,066 167,400
- -----------------------------------------------------------------------------------------------------------
Total cash obligations $179,506 $195,214 $44,282 $687,691 $1,106,693
- -----------------------------------------------------------------------------------------------------------
Long-term debt due during 2002 includes the retirement of our convertible
notes. Our convertible notes mature in November 2002.
At June 30, 2002, we had outstanding letters of credit of approximately
$11.4 million related to performance and payment guarantees. In addition, we
have issued letters of credit of $2.3 million as credit enhancements in
conjunction with other debt. Based on our experience with these
arrangements, we do not believe that any obligations that may arise will be
significant.
Subsequent to June 30, 2002, the Company was required to refinance a
sale/leaseback arrangement. In connection with the refinancing, the Company
was required to make a payment of $15.8 million that will be expensed in the
Company's third quarter. In addition, $5.5 million of the deferred costs
associated with this arrangement will be written-off.
In August 2002, we completed the sale of the filing products division of our
envelope business for $36.7 million, which was consistent with our
expectations. The net proceeds from this transaction were $31.5 million and
were used to reduce our revolving loan balance.
We expect to be able to fund our operations, capital expenditures and debt
and other contractual commitments within the next year from internally
generated cash flow and funds available under our new $300 million Senior
Security Credit Facility. At June 30, 2002, we had $107.2 million of unused
credit available under this credit facility.
CRITICAL ACCOUNTING POLICIES AND JUDGMENTS
In preparing our financial statements, we are required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. We evaluate our estimates and judgments on an
ongoing basis, including those related to bad debts, inventory valuations,
property, plant and equipment, intangible assets, income taxes,
restructuring costs, and contingencies and litigation. We base our estimates
and judgments on historical experience and on various other factors that we
believe to be reasonable under the circumstances. Actual results may differ
from these estimates.
33
During the quarter ended June 30, 2002, the decision was made to reinstate
the PrintXcel business as an operating asset. Under generally accepted
accounting principles, when a business that was held for sale is reinstated
as a continuing operation, it is to be recorded at the lower of its carrying
value or fair market value. In 2001, we reduced the carrying value of the
net assets of this business to its net realizable value. We based our
determination of the net realizable value of this business on the advice
provided to us by our financial advisors. Our internal valuations of this
business continue to support its carrying value, which we believe to be less
than its fair market value.
Assets held for sale have been recorded at net realizable value. The net
realizable value of the assets of our commercial printing segment held for
sale is based on a letter of intent received from a prospective buyer. We do
not expect the actual proceeds to be significantly different from our
estimates; however, until the sale is completed, the possibility exists that
the actual proceeds could be materially different from our estimate.
We exercise judgment in evaluating our long-lived assets for impairment.
Except for our commercial printing business, we believe our businesses will
generate sufficient cash flow to more than recover the investments we have
made in property, plant and equipment, as well as the goodwill and other
intangibles recorded as a result of our acquisitions. In connection with the
implementation of SFAS 142 discussed below, we are in the process of
quantifying the impairment in our commercial printing business.
We are self insured for the majority of our workers' compensation costs and
group health insurance costs. We rely on claims experience and the advice of
consulting actuaries and administrators in determining an adequate liability
for self-insurance claims.
The determination of our tax provision is complex due to operations in
several tax jurisdictions outside the United States. In addition,
realization of certain deferred tax assets is dependent upon our ability to
generate future taxable income and future capital gains.
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
Statement 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. Statement 141 also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets arising from business combinations completed after
June 30, 2001. Statement 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. Statement 142 requires that
these assets be reviewed for impairment at least annually. Intangible assets
with finite lives will continue to be amortized over their estimated useful
lives. Additionally, Statement 142 requires that goodwill included in the
carrying value of equity method investments no longer be amortized.
We adopted Statement 142 on January 1, 2002. We have completed the first
step of the two-step process prescribed in Statement 142 to test goodwill
for impairment and have concluded that a portion of the $213.5 million of
goodwill related to our commercial printing business is impaired. We will
not know the extent of this impairment until we have completed step two of
the process, which we have begun. We will recognize the amount of the
impairment as a cumulative effect of a change in accounting principle as of
January 1, 2002, when it is determined, but no later than December 31, 2002.
34
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. Statement 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. Mail-Well will adopt Statement 143 on
January 1, 2003. We are evaluating the impact of the adoption of Statement
143 on the consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which establishes one accounting model to
be used for long-lived assets to be disposed of by sale and broadens the
presentation of discontinued operations to include more disposal
transactions. Statement 144 supercedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of and the accounting and
reporting provisions of ABP Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects Of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Mail-Well adopted Statement 144 as of January 1, 2002 and
there was no impact from the adoption of this statement.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This statement provides guidance on the classification of gains
and losses from the extinguishment of debt and on the accounting for certain
specified lease transactions. The Company is currently evaluating the
provisions of the new statement.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring).
Generally, SFAS No. 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized as incurred, whereas EITF Issue
No. 94-3 required such a liability to be recognized at the time that an
entity committed to an exit plan. The company is currently evaluating the
provisions of the new rule, which is effective for exit or disposal
activities that are initiated that are after December 31, 2002.
FORWARD-LOOKING INFORMATION
This report, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations," may contain various "forward-looking
statements," within the meaning of Section 21E of the Securities Exchange
Act of 1934, that are based on management's belief and assumptions, as well
as information currently available to management. Although we believe that
the expectations reflected in any such forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to be
correct. Any such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, our actual financial
results, performance or condition may vary materially from those expected.
Some of the key factors that may have a direct bearing on our actual
financial results, performance or condition are as follows:
>> Paper and other raw material costs
>> The degree and nature of competition
>> The ability to execute restructuring plans and achieve productivity and
cost savings goals
>> Postage rates and other changes in the direct-mail industry
>> Interest rates and foreign currency exchange rates
>> Ability to obtain additional or alternative financing
>> General economic conditions
>> General labor conditions
>> Others as described in our most recent annual report on Form 10-K under
the heading "Risk Factors"
35
In view of such uncertainties, investors are cautioned not to place undue
reliance on these forward-looking statements. We do not assume any
obligation to update these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks such as changes in interest and foreign
currency exchange rates, which may adversely affect results of operations
and financial position. Risks from interest and foreign currency exchange
rate fluctuations are managed through normal operating and financing
activities. We do not utilize derivatives for speculative purposes, nor do
we hedge interest rate exposure through the use of swaps and options or
foreign exchange exposure through the use of forward contracts.
Exposure to market risk from changes in interest rates relates primarily to
our variable rate debt obligations. The interest on this debt is based on a
base rate or LIBOR, plus a margin. At June 30, 2002, we had outstanding
variable rate debt outstanding of $137.2 million. A 1% increase in the base
rate (which is tied to the prime rate) or LIBOR on the maximum amount
available under our credit agreement, which is $302.2 million, would
increase our annual interest expense by $3.0 million and reduce annual net
income by approximately $1.9 million.
We have operations in Canada, and thus are exposed to market risk for
changes in foreign currency exchange rates of the Canadian dollar.
36
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On May 1, 2002, the Company held its Annual Meeting of
Stockholders, at which the following matters were voted upon:
ELECTION OF DIRECTORS - The following individuals were elected or
re-elected to the Board of Directors by the following vote:
Name For Withhold
---- --- --------
Frank P. Diassi 39,527,949 227,988
Frank J. Hevrdejs 39,511,042 244,895
Janice C. Peters 39,554,615 201,322
Jerome W. Pickholz 38,957,842 798,095
Paul V. Reilly 36,397,589 3,358,348
Alister W. Reynolds 39,548,815 207,122
W. Thomas Stevens 39,554,222 201,715
SELECTION OF AUDITORS - The selection of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending 2002 was
ratified by the following vote: 39,190,433 For, 548,019 Against, 17,485
Abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Certificate of Incorporation of Mail-Well
Corporation--incorporated by reference from
Mail-Well I Corporation's Form S-4 filed
March 15, 1999 (Reg. No. 333-74409).
3.2 Certificate of Amendment of Certificate of
Incorporation of Mail-Well Corporation--
incorporated by reference from Mail-Well I
Corporation's Form S-4 filed March 15, 1999
(Reg. No. 333-74409).
3.3 Certificate of Correction Filed to Correct
Certain Error in the Certificate of Amendment
of Mail-Well 1 Corporation Filed in the Office
of the Secretary of State of Delaware on
September 11, 1995--incorporated by
reference from Mail-Well I Corporation's
Form S-4 filed March 15, 1999 (Reg. No.
333-74409).
3.4 Certificate of Change of Registered Agent and
Registered Office--incorporated by reference
from Mail-Well I Corporation's Form S-4 filed
March 15, 1999 (Reg. No. 333-74409).
3.5 Bylaws of Mail-Well I Corporation--incorporated
by reference from Mail-Well I Corporation's
Form S-4 filed March 15, 1999 (Reg. No.
333-74409).
4.1 Form of Indenture between Mail-Well, Inc. and
The Bank of New York, as Trustee, dated
November 1997, relating to Mail-Well, Inc.'s
$152,050,000 aggregate principal amount of 5%
Convertible Subordinated Notes due 2002--
incorporated by reference from Exhibit 4.2
to Mail-Well, Inc.'s Amendment No. 2 to
Form S-3 dated November 10, 1997 (Reg. No.
333-36337).
4.2 Form of Supplemental Indenture between
Mail-Well, Inc. and The Bank of New York,
as Trustee, dated November 1997, relating
to Mail-Well, Inc.'s $152,050,000 aggregate
principal amount of 5% Convertible
Subordinated Notes due 2002 and Form of
Convertible
37
EXHIBIT
NO. DESCRIPTION
------- -----------
Note--incorporated by reference from Exhibit
4.5 to Mail-Well, Inc.'s Amendment No. 2 to
Form S-3 dated November 10, 1997 (Reg.
No. 333-36337).
4.3 Indenture dated as of December 16, 1998 between
Mail-Well I and Trust Company, as Trustee,
relating to Mail-Well I Corporation's
$300,000,000 aggregate principal amount of
8 3/4% Senior Subordinated Notes due 2008--
incorporated by reference from Exhibit 4.4 to
Mail-Well, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1998, File
No. 1-12551.
4.4 Form of Senior Subordinated Note--incorporated
by reference from Exhibit 4.5 to Mail-Well,
Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1998, File No. 1-12551.
4.6 Indenture dated as of March 13, 2002 between
Mail-Well I Corporation and State Street Bank
and Trust Company, as Trustee relating to
Mail-Well I Corporation's $350,000,000
aggregate principal amount of 9 5/8% Senior
Notes due 2012--incorporated by reference
to Exhibit 10.30 to Mail-Well, Inc.'s
Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002.
4.7 Form of Senior Note and Guarantee relating to
Mail-Well I Corporation's $350,000,000
aggregate principal amount 9 5/8% due 2012--
incorporated by reference to Exhibit 10.31 to
Mail-Well, Inc.'s Quarterly Report on Form
10-Q for the quarter ended March 31, 2002.
10.1 Form of Indemnity Agreement between Mail-Well,
Inc. and each of its officers and directors--
incorporated by reference from Exhibit 10.17
of Mail-Well, Inc.'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 Mail-Well,
Inc.'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 Mail-Well, Inc.'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 Mail-Well, Inc.'s Registration
Statement on Form S-1 dated March 25, 1994.
10.5 Mail-Well, Inc. 1994 Stock Option 1997--
incorporated by reference from Exhibit 10.56
of Mail-Well, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1997.
10.6 Form of Mail-Well, Inc. Incentive Stock Option
Agreement--incorporated by reference from
Exhibit 10.22 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated
March 25, 1994.
10.7 Form of Mail-Well, Inc. Nonqualified Stock
Option Agreement--incorporated by from
Exhibit 10.23 of Mail-Well, Inc.'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 Mail-Well, Inc.'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 Mail-Well, Inc.'s Form 10-Q for the quarter
ended March 31, 1997.
10.10 Mail-Well, Inc. 1998 Incentive Stock Option
Plan--incorporated by
38
EXHIBIT
NO. DESCRIPTION
------- -----------
reference from Exhibit 10.58 to the Company's
Quarterly report on Form 10-Q for the quarter
ended March 31, 1998.
10.11 Mail-Well, Inc. 1998 Incentive Stock Option
Plan 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 Participation Agreement dated as of
December 15, 1997, among Mail-Well I
Corporation, Keybank National Association,
as Trustee and other financial institutions
party thereto--incorporated by reference
from Exhibit 10.62 to Mail-Well, Inc.'s
Form 10-Q for the quarter ended March 31, 1998.
10.13 Equipment Lease dated as of December 15, 1997
among Mail-Well I Corporation, Keybank
National Association, as Trustee and other
financial institutions party thereto--
incorporated by reference from Exhibit 10.63
to Mail-Well, Inc.'s Form 10-Q for the quarter
ended March 31, 1998.
10.14 Guaranty Agreement dated as of December 15,
1997, among Mail-Well, Inc., Graphic Arts
Center, Inc., Griffin Envelope Inc., Murray
Envelope Corporation, Shepard Poorman
Communications Corporation, Wisco Envelope
Corp., Wisco II, LLC, Wisco III, LLC,
Mail-Well I Corporation, Keybank National
Association, as Trustee and other financial
institutions party thereto--incorporated by
reference from Exhibit 10.64 to Mail-Well,
Inc.'s Form 10-Q for the quarter ended
March 31, 1998.
10.15 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 the Annual
Report on Form 10-K for Mail-Well, Inc.
10.16 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.
10.17 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.
10.18 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.
10.19 Mail-Well, Inc. 2001 Long-Term Equity
Incentive Plan -- Incorporated by reference
from the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001.
10.20 Form of Non-Qualified Stock Option Agreement
under 2001 Long-Term Equity Incentive Plan -
Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001.
10.21 Form of Incentive Stock Option Agreement
under 2001 Long-Term Equity Incentive Plan --
Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001.
10.22 Form of Restricted Stock Award Agreement under
2001 Long-Term Equity Incentive Plan -
Incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001.
10.23 Purchase Agreement dated March 8, 2002,
between Mail-Well I Corporation, and Credit
Suisse First Boston, UBS Warburg LLC, Banc
39
EXHIBIT
NO. DESCRIPTION
------- -----------
of America Securities LLC, U.S. Bancorp Piper
Jaffray Inc., First Union Securities, Inc.,
and Scotia Capital (USA) Inc., as Initial
Purchasers, relating to Mail-Well I
Corporation's $350,000,000 aggregate principal
amount of 9 5/8% Senior Notes due 2012--
incorporated by reference to Exhibit 10.30
to Mail-Well I Corporation's Registration
Statement on Form S-4 filed June 11, 2002.
10.24 Registration Rights Agreement dated March 13,
2002, between Mail-Well I Corporation, and
Credit Suisse First Boston, UBS Warburg LLC,
Banc of America Securities LLC, U.S. Bancorp
Piper Jaffray Inc., First Union Securities,
Inc., and Scotia Capital (USA) Inc., as
Initial Purchasers, relating to Mail-Well I
Corporation's $350,000,000 aggregate principal
amount of 9 5/8% Senior Notes due 2012--
incorporated by reference to Exhibit 10.32
to Mail-Well, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002.
10.25 Stock Purchase Agreement, dated May 6, 2002,
among MWL Acquisition Corp., Mail-Well I
Corporation and Mail-Well, Inc.--
incorporated by reference to Exhibit 10.32
to Mail-Well I Corporation's Registration
Statement on Form S-4 filed June 11, 2002.
10.26 Amendment No. 1 to Stock Purchase Agreement,
dated May 21, 2002, among MWL Acquisition
Corp., Mail-Well I Corporation and Mail-Well,
Inc.--incorporated by reference to Exhibit
10.33 to Mail-Well I Corporation's
Registration Statement on Form S-4 filed
June 11, 2002.
10.27* Amended and Restated Credit Agreement dated
June 27, 2002, among the Company, Mail-Well I
Corporation, the domestic subsidiaries of
Mail-Well I Corporation named in the agreement,
the financial institutions from time to
time parties thereto, and Bank of America,
N.A., as administrative agent.
10.28* Amended and Restated Security Agreement dated
June 27, 2002, among the Company, Mail-Well I
Corporation, the domestic subsidiaries of
Mail-Well I Corporation named in the
agreement, and Bank of America, N.A., as agent.
<FN>
- -------------
* Filed herewith.
(b) Reports on Form 8-K
1. Current Report on Form 8-K filed April 9, 2002, reported under Item
5 of the script of the Company's investor conference call held
April 9, 2002, and the Company's press release dated April 8, 2002.
2. Current Report on Form 8-K filed May 10, 2002, reported under Item
5 of the transcript of the Company's investor conference call held
April 19, 2002, and the Company's press release dated April 19,
2002.
3. Current Report on Form 8-K filed May 22, 2002, reported under Item 5
of the Company's press release with respect to its divestiture of its
Label division for $75 million in cash.
40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAIL-WELL, INC.
(Registrant)
By /s/ Paul V. Reilly
------------------------------
Date: August 14, 2002 Paul V. Reilly
Chief Executive Officer
By /s/ Michel P. Salbaing
------------------------------
Date: August 14, 2002 Michel P. Salbaing
Chief Financial Officer
41