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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 March 31,June 30, 1998
Commission file number 1-12551
MAIL-WELL, INC.
(Exact name of Registrant as specified in its charter.)
COLORADO 84-1250533
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
23 Inverness Way East, 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 MayAugust 12, 1998, the Registrant had 43,051,00148,654,627 shares of Common
Stock, $0.01 par value, outstanding.
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1
MAIL-WELL, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PAGE
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Part I - Financial Information
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
Part II - Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Securities Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
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PAGE
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Part I - Financial Information
Item 1. Financial Statements.........................................3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 21
Part II - Other Information
Item 1. Legal Proceedings .........................................21
Item 2. Changes in Securities.......................................21
Item 3. Defaults upon Senior Securities.............................21
Item 4. Submission of Matters to a Vote of Securities Holders.......21
Item 5. Other Information .........................................22
Item 6. Exhibits and Reports on Form 8-K............................23
2
PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS
MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
MARCH 31,JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
CURRENT ASSETS
Cash and cash equivalentsequivalents..................................................... $ 8,18524,961 $ 37,58740,911
Receivables, net 59,288 38,436net.............................................................. 109,418 64,958
Accounts receivable -- other 8,257 7,874other.................................................. 10,831 8,082
Income tax receivable, net -- 1,777net.................................................... 1,963 2,225
Securitized interest in accounts receivable 42,598receivable................................... 15,374 22,319
Inventories 96,732 78,143Inventories................................................................... 118,271 86,268
Deferred income taxes 2,493 2,410taxes......................................................... 4,277 2,558
Other current assets 7,504 5,093assets.......................................................... 9,974 7,577
-------- --------
Total current assets 225,057 193,639assets......................................................... 295,069 234,898
PROPERTY, PLANT AND EQUIPMENT -- NET 279,766 223,390NET.............................................. 378,556 262,797
DEFERRED FINANCING COSTS -- NET 2,485 1,938NET................................................... 2,577 1,936
GOODWILL -- NET 220,988 153,524NET................................................................... 283,870 153,927
OTHER ASSETS -- NET 15,038 13,710NET............................................................... 23,414 17,853
-------- --------
TOTAL $743,334 $586,201TOTAL............................................................................. $983,486 $671,411
-------- --------
-------- --------
CURRENT LIABILITIES
Accounts payablepayable.............................................................. $ 64,18073,808 $ 42,57253,641
Accrued compensation and vacation 27,102 26,533vacation............................................. 37,473 32,729
Accrued interest 4,114 4,337
Income tax payable, net 659 --interest.............................................................. 5,014 4,410
Other current liabilities 26,313 26,913liabilities..................................................... 34,281 28,143
Current portion of long-term debt and capital leases 464 562leases.......................... 7,766 10,533
-------- --------
Total current liabilities 122,832 100,917liabilities.................................................... 158,342 129,456
ACCRUED PENSIONPENSION................................................................... 1,174 1,174
CAPITAL LEASES 40 2,771LEASES.................................................................... 6,476 3,128
BANK BORROWINGS 95,710 60,193BORROWINGS................................................................... 244,350 90,179
SENIOR SUBORDINATED NOTESNOTES......................................................... 85,000 85,000
CONVERTIBLE SUBORDINATED NOTESNOTES.................................................... 152,050 152,050
DEFERRED INCOME TAXES 28,757 28,676TAXES............................................................. 31,300 29,299
OTHER LONG TERM LIABILITIES 5,439 5,519LIABILITIES....................................................... 9,953 5,805
-------- --------
Total liabilities 491,002 436,300liabilities............................................................ 688,645 496,091
-------- --------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTINTEREST................................................................. 3,500 3,500
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; 25,000 shares authorized, none issued and
outstandingoutstanding................................................................ -- --
Common stock, $0.01 par value; 100,000,000 shares authorized, 42,846,406 and
37,679,63848,631,744 and 43,042,959 shares issued and outstanding, respectively
(including 3,896,544 shares held by ESOP) 428 377..................................... 486 430
Paid-in capital 192,494 99,843capital.............................................................. 206,095 102,475
Retained earnings 59,317 49,807earnings............................................................ 89,948 72,541
Unearned ESOP compensation (2,357)compensation................................................... (2,264) (2,406)
Cumulative foreign currency translation
adjustment (730) (1,032)
Pension liability adjustment (73) (73)
Unrealized loss, net of taxes, on securitized
interest in accounts receivable (247) (115)Other........................................................................ (2,924) (1,220)
-------- --------
Total stockholders' equity 248,832 146,401equity................................................... 291,341 171,820
-------- --------
TOTAL $743,334 $586,201TOTAL............................................................................. $983,486 $671,411
-------- --------
-------- --------
See notes to unaudited consolidated financial statements.
3
MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)(THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
-----------------------------JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1998 1997 1998 1997
-------- -------- -------- ------
NET SALES $274,705 $212,032SALES..................................................... $350,059 $250,474 $668,793 $503,914
COST OF SALES
Materials 116,205 89,958Materials................................................ 147,866 99,237 278,780 202,903
Labor and other 80,454 59,017
Manufacturing 18,137 15,541
Depreciation 4,620 3,355other.......................................... 103,680 73,561 197,383 145,864
Manufacturing............................................ 23,495 17,794 45,350 37,031
Depreciation............................................. 8,059 5,085 14,514 10,165
Waste recovery (3,222) (2,473)recovery........................................... (3,468) (2,193) (6,708) (4,633)
-------- -------- -------- --------
Total cost of sales 216,194 165,398sales................................. 279,632 193,484 529,319 391,330
GROSS PROFIT 58,511 46,634PROFIT.................................................. 70,427 56,990 139,474 112,584
OTHER OPERATING COSTS
Selling 19,867 15,421
Administrative 14,529 12,799
Amortization 1,733 1,117Selling.................................................. 26,446 19,684 50,919 39,099
Administrative........................................... 16,517 15,718 34,080 31,873
Amortization............................................. 2,098 988 3,900 2,151
Merger costs............................................. 771 -- 3,002 --
(Gain) loss on disposal of assets ( 467) 871assets........................ (272) 83 (750) 943
-------- -------- -------- --------
Total other operating costs 35,662 30,208costs......................... 45,560 36,473 91,061 74,066
OPERATING INCOME 22,849 16,426INCOME.............................................. 24,867 20,517 48,413 38,518
OTHER EXPENSE
Interest expense - debt 5,589 4,554debt.................................. 6,314 5,362 12,799 10,828
Interest expense - amortization of deferred financing
costs 89 724costs.................................................... 94 746 192 1,500
Discount on sale of accounts receivable 807 1,269receivable............... 1,355 938 2,162 1,961
Other income (195) (530)............................................ (482) (446) (1,085) (932)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 16,559 10,409TAXES.................................... 17,586 13,917 34,345 25,161
PROVISION FOR INCOME TAXES
Current 4,371 2,551
Deferred 2,678 1,877Current.................................................. 5,610 3,334 10,341 5,865
Deferred................................................. 677 1,708 3,172 3,569
-------- -------- -------- --------
NET INCOMEINCOME.................................................... $ 9,51011,299 $ 5,9818,875 $ 20,832 $ 15,727
-------- -------- -------- --------
-------- -------- -------- --------
EARNINGS PER BASIC SHARESHARE...................................... $ 0.250.24 $ 0.170.22 $ 0.46 $ 0.39
EARNINGS PER DILUTED SHARESHARE.................................... $ 0.22 $ 0.160.21 $ 0.42 $ 0.38
WEIGHTED AVERAGE SHARES - BASIC 38,154,942 35,553,099BASIC............................... 46,790 40,377 45,155 40,313
WEIGHTED AVERAGE SHARES - DILUTED 48,357,308 36,413,862DILUTED............................. 56,786 41,828 55,245 41,423
See notes to unaudited consolidated financial statements.
4
MAIL-WELL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREESIX MONTHS ENDED MARCH 31,
----------------------------JUNE 30,
-------------------------
1998 1997
--------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net incomeincome................................................................. $ 9,51020,832 $ 5,98115,727
Adjustments to reconcile net income to cash provided by (used in) operations
Depreciation 4,620 3,355
Amortization 1,822 1,841Depreciation.............................................................. 14,514 10,165
Amortization............................................................... 4,092 3,651
Deferred tax provision 2,678 1,877provision..................................................... 3,172 3,569
(Gain), loss on disposal of assets (467) 871assets......................................... (750) 943
ESOP compensation expense 719expense.................................................. 2,156 68
Other (132) 20Other...................................................................... 23 441
Change in operating assets and liabilities
Receivables (32,982) 3,724Receivables................................................................ 4,734 10,823
Current income taxes (302) 334
Inventories (4,559) (3,034)taxes....................................................... (3,347) 1,227
Inventories................................................................ (2,686) (4,452)
Accounts payable 5,527 (1,193)payable........................................................... (5,893) (3,555)
Accrued interest (223) (1,658)interest........................................................... 604 1,230
Other working capital 11,907 (1,128)capital...................................................... (2,054) 4,813
Accrued pension, current and long term (219) (40)term.................................... (269) 115
Other assets and other long-term liabilities (375) 443liabilities............................... (3,237) (2,157)
--------- -----------------
Net cash provided by (used in) operating activities (2,476) 11,461activities................................ 31,891 42,608
--------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs, (140,927) (189)net of cash acquired.................................... (254,623) (6,800)
Capital expenditures (12,871) (5,601)expenditures....................................................... (31,255) (21,941)
Proceeds from sale of property, plant and equipment 248 24equipment........................ 690 833
--------- -----------------
Net cash used in investing activities (153,550) (5,766)activities.................................... (285,188) (27,908)
--------- --------
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
ProceedsNet proceeds from common stock issuance 92,018 44issuance................................... 92,268 194
Cash overdrafts - 361overdrafts............................................................ 0 (771)
Proceeds from long-term debt 93,098 7,000debt............................................... 337,130 15,788
Repayments of long-term debt (59,107) (11,333)
Repayments ofand capital lease obligations (87) (258)obligations................. (186,092) (22,931)
Repurchase of stock by pooled entities..................................... (623) (1,069)
Dividends and distributions paid by pooled entities........................ (3,035) (2,206)
--------- -----------------
Net cash provided by (used in) financing activities 125,922 (4,186)activities...................... 239,648 (10,995)
--------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 702 (314)CASH....................................... (2,301) (315)
--------- --------
INCREASE---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (29,402) 1,195EQUIVALENTS....................................... (15,950) 3,390
BALANCE AT BEGINNING OF PERIOD 37,587 9,656PERIOD................................................ 40,911 12,297
--------- -----------------
BALANCE AT END OF PERIODPERIOD...................................................... $ 8,18524,961 $ 10,85115,687
--------- --------
---------
----------------- ---------
SUPPLEMENTAL DISCLOSURES
Cash paid for interestinterest..................................................... $ 5,81212,195 $ 6,2119,805
Cash paid for taxes 2,178 2,803income taxes................................................. 9,470 6,133
Stock issued for acquisitions.............................................. 7,471 0
See notes to unaudited consolidated financial statements.
5
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF OPERATIONS -- Mail-Well, Inc. and subsidiaries (the "Company")
is one ofa leading consolidator in the largest printers in North America,highly fragmented printing industry,
specializing in customcustomized envelopes, high quality printed materials,impact printing, commercial
printing, consumer products labels and business communications documents and
filing products. Within envelope printing and filing products, the Company
competes primarily in the consumer direct segment in which envelopes are
designed and manufactured to customer specifications. In addition, the Company
manufactures stock envelopes sold in the office products and merchant/printer
markets. The Company is also a leading high impact commercial printer
specializing in printing advertising literature, high-end catalogs, annual
reports, calendars and computer instruction books and is recognized as an
innovative provider of quality printed products to leading companies in the
United States. With acquisitions in early 1998, the Company is now a major
printer of custom business communications documents for the distributor market
and a major printer of glue-applied paper labels for the beverage, food and
household products industries. The Company commenced operations on February 24,
1994 with the acquisition of the envelope businesses of Georgia-Pacific
Corporation ("GP Envelope") and Pavey Envelope and Tag Corp. ("Pavey").documents.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The Company, headquartered in Englewood,
Colorado, is organized under Colorado law and its common stock is traded on
the New York Stock Exchange. These financial statements include the accounts
of the Company and all significant intercompany accounts and transactions
have been eliminated.
INTERIM FINANCIAL INFORMATION -- The interim financial information
contained herein is unaudited and includes all normal and recurring
adjustments which, in the opinion of management, are necessary to present
fairly the information set forth. The consolidated financial statements
should be read in conjunction with the Notes to the Consolidated Financial
Statements which are included in the Company's Form 10-K.8-K dated May 30, 1998
and its 1997 10-K Form. The results for interim periods are not necessarily
indicative of results to be expected for the Company's fiscal year ending
December 31, 1998. The Company believes that the report filed on Form 10-Q is
representative of its financial position, its results of operations and its
cash flows for the threequarter and six months ended March 31,June 30, 1998 and 1997.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")-- Unearned ESOP compensation
balance is presented in the accompanying financial statements as a reduction
of equity. As the ESOP shares are allocated to participants, the unearned
ESOP compensation balance will decrease and compensation expense will be
recorded.
AUTHORIZED CAPITAL STOCK -- At the Company's annual meeting on April 29,
1998, the shareholders approved an amendment to the Articles of Incorporation
to increase the number of shares of common stock authorized for issuance to a
total of 100,000,000 shares.
RECLASSIFICATION -- Certain amounts in the 1997 financial statements have
been reclassified to conform to the 1998 presentation.
INVENTORIES-- Detail of inventories, in thousands
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
Raw materials................................. $ 44,548 $34,656
Work in process............................... 24,114 12,428
Finished goods................................ 52,923 42,132
Reserve for obsolescence and loss............. (3,314) (2,948)
-------- -------
Total......................................... $118,271 $86,268
-------- -------
-------- -------
6
OTHER COMPREHENSIVE INCOME-- Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income. Accordingly, components of other comprehensive
income (loss) are as follows,
Balance Current Balance
January 1 Period Change March 31, -------------- ------------- ----------------Quarter Ended June 30, Balance June 30,
------------------ ---------------------- ------------------
(in thousands) 1998 1997 1998 1997 1998 1997
-------- ------ -------- ------- ----- ----- ----- --------------- ------
Cumulative foreign currency translation adjustment $(1,032) $(115) $ 302 $(140)adjustment.. $ (730) $(255) $(2,044) $ (3) $(2,774) $(258)
Pension liability adjustmentadjustment........................ (73) (110) 0 0 (73) (110)
Unrealized loss, net of taxes, on securitized
interest in accounts receivable (115)receivable.................. (247) (49) (132)169 0 (247)(77) (49)
------- ----- ----- ------------ ------ ------- -----
Accumulated other comprehensive income (loss) $(1,220) $(274) $ 170 $(140)loss................ $(1,050) $(414) (1,875) (3) $(2,924) $(417)
------- ----- ----- ----- ------- -----
------- ----- ------- -----
Net income.......................................... 11,299 8,875
------- ------
Comprehensive income................................ $ 9,424 $8,872
------- ------
------- ------
Balance January 1 Six Months Ended June 30, Balance June 30,
----------------- ------------------------- -----------------
(in thousands) 1998 1997 1998 1997 1998 1997
------- ----- ------- ------- ------- -----
Cumulative foreign currency translation adjustment.. $(1,032) $(115) $(1,742) $ (143) $(2,774) $(258)
Pension liability adjustment........................ (73) (110) 0 0 (73) (110)
Unrealized loss, net of taxes, on securitized
interest in accounts receivable.................. (115) (49) 37 0 (77) (49)
------- ----- ------- ------- ------- -----
Accumulated other comprehensive loss................ $(1,220) $(274) (1,705) (143) $(2,924) $(417)
------- ----- ------- -----
------- ----- ------- -----
Net income.......................................... 20,832 15,727
------- -------
Comprehensive income................................ $19,127 $15,584
------- -------
------- -------
6
EARNINGS PER SHARE -- In June 1997, the Company's common stock split 3:2
and in MayJune 1998 the Company declared a 2:1Company's stock split effective June 1, 1998;2:1; all share and per share
information havehas been retroactively restated to reflect these splits. In 1997, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 128, Earnings Per Share" ("SFAS
128"). The Company has adopted SFAS 128 resulting in the restatement of earnings
per share for all prior periods. Basic earnings per share excludes dilution and
is computed by dividing earnings available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings. Common shares outstanding excludes
unallocated shares issued under the ESOP.Employee Stock Ownership Plan are
excluded from both the basic and diluted earnings per share calculations.
INCOME SHARES PER-SHARE
(in thousands, except share and per share amounts) (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
FOR THE THREE MONTHS ENDED MARCH 31,JUNE 30, 1998,
EARNINGS PER BASIC SHARE
Income available to common stockholdersstockholders......................... $ 9,510 38,154,942 $0.2511,299 46,790 $ 0.24
EFFECT OF DILUTIVE SECURITIES
Stock options 1,954,260options................................................... 1,698
Convertible subordinated notesnotes.................................. 1,083 8,002,634
Other 245,4728,003
Other........................................................... 295
EARNINGS PER DILUTED SHARE
Income available to common stockholders including
assumed conversions $10,593 48,357,308 $0.22conversions........................................ $ 12,382 56,786 $ 0.22
FOR THE THREE MONTHS ENDED MARCH 31,JUNE 30, 1997,
EARNINGS PER BASIC SHARE
Income available to common stockholdersstockholders......................... $ 5,981 35,553,099 $0.178,875 40,377 $ 0.22
EFFECT OF DILUTIVE SECURITIES
Stock options 812,613
Other 48,150options................................................... 1,403
Other........................................................... 48
EARNINGS PER DILUTED SHARE
Income available to common stockholders including
assumed conversionsconversions........................................ $ 5,981 36,413,862 $0.168,875 41,828 $ 0.21
7
INCOME SHARES PER-SHARE
(in thousands, except per share amounts) (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
FOR THE SIX MONTHS ENDED JUNE 30, 1998,
EARNINGS PER BASIC SHARE
Income available to common stockholders......................... $ 20,832 45,155 $ 0.46
EFFECT OF DILUTIVE SECURITIES
Stock options................................................... 1,817
Convertible subordinated notes.................................. 2,166 8,003
Other........................................................... 270
EARNINGS PER DILUTED SHARE
Income available to common stockholders including
assumed conversions........................................ $ 22,998 55,245 $ 0.42
FOR THE SIX MONTHS ENDED JUNE 30, 1997,
EARNINGS PER BASIC SHARE
Income available to common stockholders......................... $ 15,727 40,313 $ 0.39
EFFECT OF DILUTIVE SECURITIES
Stock options................................................... 1,014
Other........................................................... 96
EARNINGS PER DILUTED SHARE
Income available to common stockholders including
assumed conversions........................................ $ 15,727 41,423 $ 0.38
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS)
INVENTORIES:
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
Raw materials $ 39,095 $ 30,308
Work in process 11,818 9,458
Finished goods 49,147 41,270
Reserve for obsolescence and loss (3,328) (2,893)
-------- --------
Total $ 96,732 $ 78,143
-------- --------
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements $ 14,918 $ 12,459
Buildings 63,542 52,817
Leasehold improvements 6,564 4,914
Machinery and equipment 196,840 162,112
Furniture and fixtures 4,108 3,730
Automobiles and trucks 761 771
Computers and software 13,803 11,745
Construction in progress 18,873 10,435
-------- --------
319,409 258,983
Less accumulated depreciation (39,643) (35,593)
-------- --------
Total $279,766 $223,390
-------- --------
-------- --------
7
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
INTEREST RATE AT
MARCH 31,JUNE 30, 1998 MARCH 31,JUNE 30, 1998 DECEMBER 31, 1997
---------------- --------------------------- -----------------
Bank borrowings:
Unsecured line of credit, due March 31, 2003 Mail-Well I Corporation5.375% $233,605 $ - $ -
Supremex 5.375% 90,238 ---
Demand note Supremex --- 55,393
Senior Subordinated Notes, due 20042004................ 10.5% 85,000 85,000
Convertible Subordinated Notes, due 20022002........... 5.0% 152,050 152,050
Other 5,777 5,105Other.............................................. 16,633 44,709
-------- --------
333,065 297,548487,288 337,152
Less current maturities (305) (305)maturities............................ (5,888) (9,923)
-------- --------
Long-term debt $332,760 $297,243debt..................................... $481,400 $327,229
-------- --------
-------- --------
On March 18,1998, the Company closed a new bank facility totaling $300
million with Bank of America, the lead agent for its syndicate of banks. The
new bank facility consists of a five-year unsecured line of credit. Proceeds
from the unsecured line of credit were used to repay the Demand Note
outstanding at December 31, 1997.
The indenture to the Senior Subordinated Notes contains restrictive covenants
that, among other things and with certain exceptions, limit the ability of the
Company to incur additional indebtedness, prepay subordinated debt, transfer
assets outside the Company, pay dividends or repurchase shares of common stock.
In addition the Company is required to satisfy financial covenants.
The Convertible Subordinated Notes constitute unsecured subordinated
obligations of the Company. They are convertible at the option of the holder
into shares of the Company's common stock at a conversion price of $38.00 per
share, or $19.00 per share after the 2:1 stock split effective June 1, 1998. In
addition, the Company may be required to repurchase the Notes at a price of 101%
of the principal amount, plus interest, upon occurrence of certain events
constituting a change of control of the Company.
5.8
4. COMMON STOCK ISSUANCE
On February 11, 1998, the Company completed the sale of 6,000,000 shares of
its Common Stock adjusted for the 2:1 stock split, at a price of $19.625 per share through a group of
underwriters led by Prudential Securities Incorporated. Of these shares,
4,864,600 were sold by the Company and 1,135,400 were sold by a group of
shareholders. Proceeds from the sale of common stock by the Company of $91.2
million, net of underwriting discounts and commissions, were used for general
corporate purposes. An additional $0.8$1.1 million in proceeds was received on the
exercise of stock options in the first
quarter of 1998.
6.year to date.
5. STOCK OPTIONS
On February 4, 1998, the Company's Board of Directors adopted a
non-qualified stock option plan (the "1998 Plan") for key employees and
directors authorizing future grants of stock options to purchase up to
1,000,000 shares of the Company's common stock, adjusted for the 2:1 stock split.stock. The 1998 Plan will be
administered by the Compensation Committee of
the Board and key employees and
directors of the Company and its affiliates may receive options as determined by
the Committee in its discretion.has approved stock option grants for 234,000 shares under this plan
to date. The exercise price of all options granted under the
1998 Plan shall not be less than 100% ofis at least the fair
market value of the Company's common stock on the date of the grant.
8
7.6. ACQUISITIONS
The statements of operations include the operations of acquisitions, all
of which have been accounted for under the purchase method of accounting,
from their acquisition date.
On January 6, 1998, the Company acquired the stock of Poser Business
Forms, Inc., ("Poser"). Poser is the second largest U.S. printer of custom
business communications documents for the distributor market and has annual
sales of $90 million. Poser, headquartered in Fairhope, Alabama, has a
nation-
widenation-wide network of 14 plants producing four-color process printing,
labels, envelopes, loose-leaf products, laser cut-sheets and business forms.
Poser also has two high-growth trademarked products, VersaSeal, a
self-mailing system, and Security Guard, a line of documents with special
security protection. This acquisition launches the Company in a new highly
fragmented, growing operating segment
On March 3, 1998, the Company acquired substantially all the assets of
Rono Graphic Communications Co. and Hicks-Chatten Engraving Company ("Rono").
Rono is a printer specializing in high-quality posters, annual reports,
advertising and point-of-purchase displays with $12 million in annual sales
located in Portland, Oregon.
On March 10, 1998, the Company acquired substantially all the assets of
the Lawson Mardon Packaging USA, Inc. label division subsequently renamed
Mail-Well Label ("MW Label"). MW Label is the second largest supplier of
glue-applied labels in North America, providing premium and conventional
labels, in-mold labels, postcards and graphic services to the food, beverage
and consumer household products markets. Headquartered in Toronto, Ontario,
with plants in Montreal, Quebec; Leamington, Ontario; Baltimore, Maryland;
and Sparks, Nevada, MW Label has annual sales of $81 million. This
acquisition also launches the Company in a new highly fragmented segment of
the printing industry.
On March 27, 1998, the Company acquired the stock of Denver Forms
Company ("Denver Forms"). Denver Forms is a business communications documents
and specialty printing manufacturer based in Denver, Colorado with annual
sales of $12 million.
On March 27, 1998, the Company acquired the stock of the National
Graphics Company ("Natl Graphics"). Natl Graphics is a forms distributor
based in Denver, Colorado with annual sales of $8 million.
On March 27, 1998, the Company acquired substantially all the assets of
EPX DENVER ("EPX"). EPX is a business communications documents and specialty
printing manufacturer based in Denver, Colorado with annual sales of $4
million.
9
On April 8, 1998, the Company acquired substantially all the assets of
Blue Line Envelope ("Blue Line"). Blue Line, located in Montreal, Quebec, is
an envelope manufacturer for office products outlets and stationers in Canada
with annual sales of $6 million.
On April 21, 1998, the Company acquired the stock of South Press, Inc.
("South Press"). South Press is a high quality printer located in Dallas,
Texas with annual sales of $12 million.
On May 5, 1998, the Company acquired the stock of Century Index
Corporation ("Century"). Century is a manufacturer of filing products located
in Anaheim, California, with annual sales of $8 million.
On May 11, 1998, the Company acquired substantially all the assets of
the International Paper label division ("IP Label"). IP Label, located in
Bowling Green, Kentucky, prints labels for consumer products and has annual
sales of $30 million.
9On May 28, 1998, the Company acquired the stock of Anderson Lithograph
("Anderson"). Anderson is a nationally known high impact printer located in
Los Angeles, California, with annual sales of $135 million.
On June 1, 1998, the Company acquired the stock of Illinois Envelope,
Inc. ("Illinois"). Illinois is an envelope manufacturer located in Kalamazoo,
Michigan, with annual sales of $7 million.
On June 22, 1998, the Company acquired the stock of Gould Packaging,
Inc. ("Gould"). Gould is a distributor of mailing and shipping supplies to
the retail mass market located in Vancouver, Washington, with annual sales of
$14 million.
7. MERGERS WITH COMMERCIAL PRINTING COMPANIES
Effective May 30, 1998, the Company completed its mergers with seven
commercial printing companies through the exchange of common stock, which
had a market value of $21.965 per share, as shown in the table below:
SHARES OF MAIL-WELL
OPERATING COMPANY NAME COMMON STOCK EXCHANGED
Color Art, Inc. ("Color Art") 2,351,951 shares
Accu-Color, Inc. ("Accu-Color") 622,391
Industrial Printing Company ("Industrial Printing") 570,161
IPC Graphics, Inc. ("IPC Graphics") 325,973
United Lithograph, Inc. ("United Lithograph") 519,568
French Bray, Inc. ("French Bray") 538,040
Clarke Printing, Co. ("Clarke Printing") 437,984
The Company's consolidated financial statements give retroactive effect to
the mergers, which have been accounted for using the pooling of interests
method and, as a result, the financial position, results of operations and
cash flows are presented as if the combining companies had been
consolidated for all periods presented.
Color Art is a commercial printer with offices located in St. Louis and
Osage Beach, Missouri, and also the operator of a short-run printing and
graphics company through its subsidiary Graphic Links, LLC. Accu-Color,
located in St. Louis, Missouri, is primarily a supplier of color
separation and other graphic arts services to the printing and advertising
industries.
Industrial Printing is located in Toledo, Ohio and is engaged in the
printing and selling of advertising pieces, labels and general commercial
printing. IPC Graphics prints and sells advertising pieces, mailers and
business forms from its facilities in Toledo, Ohio.
10
United Lithograph provides commercial printing services to individuals and
businesses located in the New England region from its offices in
Somerville, Massachusetts. French Bray, located in Glen Burnie, Maryland,
provides commercial, high quality, multi-color printing in the
Mid-Atlantic region. Clarke Printing designs, manufactures and sells
printed materials throughout Texas and Mexico.
The companies listed above are hereafter collectively referred to as the
Commercial Printing Group.
Each of the mergers was negotiated and consummated as separate
transactions and the separate mergers were not contingent upon each other.
Except for French Bray and Clarke Printing, all of the above entities had
elected Subchapter S corporation treatment for U.S. federal income tax
purposes and, accordingly, did not pay U.S. federal income taxes.
Subsequent to May 30, 1998, these companies will be included in
Mail-Well's consolidated U.S. federal income tax return. In connection
with the mergers, the Company also issued common stock to acquire the net
assets (including the assumption of the debt associated with such assets)
of certain related real estate ventures owned by shareholders of the
commercial printing companies. The shares of the Company's common stock
exchanged for real estate assets are included with the shares exchanged
for the respective operating company in the table above. The results of
operations and financial conditions of the real estate assets are
reflected in the consolidated financial statements with significant
intercompany transactions and balances eliminated.
Each of the above transactions has been accounted for individually as a
pooling of interests and, accordingly, the consolidated financial
statements for the periods subsequent to February 24, 1994 (inception)
have been restated to include the accounts of the Commercial Printing
Group. Prior to the mergers, Industrial Printing's and IPC Graphics'
fiscal year ended on September 30, United Lithograph's fiscal year ended
on June 30 and French Bray's fiscal year ended on July 31. Accordingly,
the accompanying financial statements include those financial statements
of entities with different fiscal years restated on a calendar year basis.
Additionally, the consolidated financial statements reflect certain minor
adjustments to conform the accounting policies of the Commercial Printing
Group with the Company's.
In connection with the mergers, transaction costs incurred by the
Commercial Printing Group of approximately $3.0 million were expensed in
1998. These costs consist primarily of investment banking, legal and
accounting fees.
11
8. SEGMENT INFORMATION
The Company's operating segments prepare separate financial information
that is evaluated regularly by the Chief Operating Officer in assessing
performance and deciding how to allocate resources. The Company does not
allocate corporate overhead, interest (income) expense, amortization expense
or income taxes by segment in assessing performance. Operating segments of
the Company are defined primarily by product line and consist of Envelope
Printing, High Impact Printing, Commercial Printing, Business Communication
Printing and Label Printing. The latter two segments were added via
acquisitions in the first quarter of 1998. The Company's segment information
for the three and six months ended June 30 is as follows:
Envelope Printing High Business
----------------- Impact Commercial Communications Label
(in thousands) U.S. Canada Printing Printing Printing Printing Corporate Total
---- ------ -------- ---------- -------------- -------- --------- -----
(b) (a)
Net Sales:
For the three months ended June 30,
1998 $162,069 $ 28,476 $ 70,973 $ 38,634 $28,602 $ 21,305 -- $350,059
1997 139,677 27,466 40,339 40,241 2,751 -- -- 250,474
For the six months ended June 30,
1998 334,271 56,673 119,657 79,703 53,159 25,330 -- 668,793
1997 279,377 59,082 81,055 78,689 5,711 -- -- 503,914
Operating Income:
For the three months ended June 30,
1998 15,502 4,655 2,501 1,987 2,508 1,661 (3,947) 24,867
1997 14,614 4,273 1,765 3,026 230 -- (3,391) 20,517
For the six months ended June 30,
1998 32,863 9,150 5,049 4,878 4,209 1,924 (9,660) 48,413
1997 29,258 8,542 3,614 4,638 439 -- (7,973) 38,518
Depreciation:
For the three months ended June 30,
1998 3,220 587 2430 1465 606 972 (1,221) 8,059
1997 2,382 579 1,529 1,725 -- -- (1,130) 5,085
For the six months ended June 30,
1998 6,346 1,137 4,178 3,300 851 1,133 (2,431) 14,514
1997 4,827 1,142 3,038 3,487 -- -- (2,329) 10,165
Identifiable Assets:
Jun 30, 1998 396,672 109,450 303,956 72,915 85,308 95,264 (80,079) 983,486
Mar 31, 1998 379,020 95,722 174,517 80,900 84,782 69,927 (55,161) 829,707
Dec 31, 1997 374,715 93,997 161,070 85,210 -- -- (43,581) 671,411
(a) Corporate identifiable assets include adjustments for the accounts
receivable securitization and certain significant operating leases. This is
done to reflect the return on assets employed within each segment on a
consistent basis.
(b) 1997 operating results in business communications printing are those of
IPC Graphics which was part of the merger completed on May 30, 1998 and
accounted for under the pooling of interests method.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the consolidated
historical financial statements and related notes of Mail-Well, Inc. and its
subsidiaries (the "Company") included elsewhere in this report. In addition
to the historical information contained herein, this report contains
forward-looking statements. The reader of this information should understand
that all such forward-looking statements are subject to various uncertainties
and risks that could affect their outcome. The Company's actual results could
differ materially from those suggested by such forward-looking statements.
Factors which could cause or contribute to such differences include, but are
not limited to, product demand and sales, growth rate, ability to obtain
assumed productivity savings, quality controls, availability of acquisition
opportunities and their related costs, cost savings due to integration and
synergies associated with acquisitions, ability to obtain additional
financings and bank debt restructuring, interest rates, foreign currency
exchange rates, paper and raw material costs, waste paper prices, ability to
pass through paper costs to customers, postage rates, changes in the direct
mail industry, competition, ability to develop new products, labor costs,
labor relations and advertising costs. This entire report should be read to
put such forward-looking statements in context and to gain a more complete
understanding of the uncertainties and risks involved in the Company's
business.
OVERVIEW
OVERVIEW
Three Months Ended March 31,June 30, Six Months Ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ----------- ----------------------- -----------
Net sales
U.S. Envelopeenvelope $ 172,202162,069 $ 139,700139,677 $ 334,271 $ 279,377
Canadian Envelope 28,197 31,616envelope 28,476 27,466 56,673 59,082
High Impact Color Printing 48,684 40,716impact color printing 70,973 40,339 119,657 81,055
Commercial printing 38,634 40,466 79,703 79,294
Business Communications Documents 21,597communication printing 28,602 2,526 53,159 5,106
Label printing 21,305 0 Consumer Products Labels 4,02525,330 0
------------ ----------- ----------------------- -----------
Total net sales 274,705 212,032350,059 250,474 668,793 503,914
------------ ----------- ----------
Cost of sales------------- -----------
Operating income
U.S. Envelope 135,619 108,323envelope 15,502 14,614 32,863 29,258
Canadian Envelope 20,146 22,777envelope 4,655 4,273 9,150 8,542
High Impact Color Printing 39,315 33,702impact color printing 2,501 1,765 5,049 3,614
Commercial printing 1,987 3,085 4,878 4,763
Business Communications Documents 17,627communication printing 2,508 171 4,209 314
Label printing 1,661 0 Consumer Products Labels 3,1531,924 0
Corporate 334 596(3,947) (3,391) (9,660) (7,973)
------------ ----------- ----------
Total cost of sales 216,194 165,398------------- ----------- ----------
Gross profit 58,511 46,634
----------- ----------
Operating expenses
U.S. Envelope 19,222 16,733
Canadian Envelope 3,556 4,570
High Impact Color Printing 6,821 5,165
10
Business Communications Documents 2,364 0
Consumer Products Labels 609 0
Corporate 3,090 3,740
----------- ----------
Total operating expenses 35,662 30,208
----------- ----------
Operating income 22,849 16,42624,867 20,517 48,413 38,518
Interest expense - debt 5,589 4,554
Interest expense -and amortization of deferred
financing costs 89 724
Discount on sale of accounts receivable 807 1,2697,763 7,046 15,153 14,289
Other income (195) (530)(income) (482) (446) (1,085) (932)
Income tax expense 7,049 4,4286,287 5,042 13,513 9,434
------------ ----------- ----------------------- -----------
Net income $ 9,51011,299 $ 5,9818,875 $ 20,832 $ 15,727
------------ ----------- ----------------------- -----------
---------------------- ----------- ------------- -----------
OVERALL OPERATING RESULTS
Sales for the quarter ended March 31,June 30, 1998 rose $62.7$99.6 million, or 30%39.8%, from
the quarter ended March 31,June 30, 1997. Net income for the quarter ended March 31,June 30,
1998 increased by $3.5$2.4 million ($0.050.01 per diluted share), or 59%27.3%, compared
with the prior year period. Sales for the six months ended June 30, 1998
increased $164.9 million, or 32.7%, from the year ago period. Net income for
the six months ended June 30, 1998 increased $5.1 million ($0.04 per diluted
share), or 32.5%, from the prior year period. During the first half of 1998
and the most recent quarter the Company continued to focus its efforts on the
operations of recently acquired businesses.businesses, especially the newly merged
commercial printing segment. These efforts included establishing the strategic
direction in the two new operatingcommercial printing segment, as well as continued focus on
business communications and labels, the other segments Business Communications Documents and
Consumer Products Labels, entered via
acquisitions in 1998. In addition, the Company reviewed acquired operations
in existing operating segments to determine changes in cost structures and
marketing strategy.
13
ACQUISITIONS
The presentation below summarizes the Company's acquisitions,
ESTIMATED
MONTH OPERATING ANNUAL
LOCATION AQUIRED SEGMENT SALES
------------------------- ------------- ---------- -------------------------------------------------------------------------
(MILLIONS)
1995 ACQUISITIONS (MILLIONS)
Supremex, Inc. ("Supremex") Canada July Envelope $ 93
Graphic Arts Center, Inc. ("GAC") Portland, Oregon August High Impact 150
------
Aggregate purchase price was $148.1 million, with $71.2 million -------- goodwill recorded 243
1996 ACQUISITIONS
Quality Park Products, Inc. ("Quality") St. Paul, Minnesota April Envelope 80
Pac National Group Products, Inc. ("PNG") Canada August Envelope 30
Shepard Poorman Communications Corp ("SP") Indianapolis, Indiana December High Impact 50
------
Aggregate purchase price was $68.2 million, with $17.7 million -------- goodwill recorded 160
1997 ACQUISITIONS
Griffin Envelope, Inc. ("Griffin") Seattle, Washington June Envelope 12
The Allied Printers ("Allied") Seattle, Washington July High Impact 17
Murray Envelope Corporation ("Murray") Hattiesburg, Mississippi July Envelope 48
National Color Graphics, Inc. ("NCG") Atlanta, Georgia September High Impact 23
Intertec Mailing Services ("MW Services") Nashville, Tennessee October Envelope 7
Cambridge, Maryland plant of Western Cambridge, Maryland December Envelope 33
------
Graphics Communications ("MW Graphics")
Aggregate purchase price was $87.0 million, with $32.7 million --------
goodwill recorded 140
FIRST QUARTER 1998 ACQUISITIONS THROUGH JUNE 1998
Poser Business Forms, Inc. ("Poser") Fairhope, Alabama January Documents 90
Rono Graphic Communications Co. ("Rono") Portland, Oregon March High Impact 12
11
Lawson Mardon Label Division ("MW Label") Toronto, Ontario March Labels 81
Denver Forms Company ("Denver Forms") Denver, Colorado March Documents 12
National Graphics Company ("Natl Graphics") Denver, Colorado March Envelope 8
EPX Denver ("EPX") Denver, Colorado March Documents 4
Blue Line Envelope ("Blue Line") Montreal, Quebec April Envelope 6
South Press, Inc. ("South Press") Dallas, Texas April High Impact 12
Century Index Corporation ("Century") Anaheim, California May Envelope 8
Label Division, IP Paper ("IP Label") Bowling Green, Kentucky May Labels 30
Anderson Lithograph ("Anderson") Los Angeles, California May High Impact 135
Illinois Envelope, Inc ("Illinois") Kalamazoo, Michigan June Envelope 7
Gould Packaging, Inc ("Gould") Vancouver, Washington June Envelope 14
------
Aggregate purchase price was $140.9$254.6 million, with $68.8$133.2 million -------- goodwill recorded 207419
1998 MERGERS, COMMERCIAL PRINTING GROUP
Color Art, Inc. ("Color Art") St. Louis, Missouri May Commercial 76
Accu-Color, Inc. ("Accu-Color") St. Louis, Missouri May Commercial 14
Industrial Printing Company ("IPC") Toledo, Ohio May Commercial 20
IPC Graphics ("IPC Graphics") Toledo, Ohio May Commercial 11
United Lithograph, Inc.("United Litho") Somerville, Mass. May Commercial 21
French Bray, Inc. ("French Bray") Glen Burnie, Maryland May Commercial 23
Clarke Printing Co. ("Clarke") San Antonio, Texas May Commercial 11
------
176
All of the acquisitions have been accounted for under the purchase method of
accounting. Accordingly the historical results of operations of the Company
include results of operations of each of the acquisitions from their date of
purchase. The mergers, as more fully described in Note 7 to the financial
statements included elsewhere herein, were accounted for as poolings of
interests and, accordingly, the Company's consolidated financial statements
since inception have been restated to include the operations of the
Commercial Printing Group, adjusted to conform with the Company's accounting
policies and presentation.
14
The table below presents the historical sales and cost of sales of the
Company, restated for the mergers, adjusted to show the effects of the
acquisitions as if the acquisitions had occurred on January 1 of the year
prior to their actual purchase date.
Three Months Ended March 31,
-----------------------------June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 -------------- -----------1998 1997
-------- -------- -------- --------
Net sales as reported $ 274,705 $ 212,032$350,059 $250,474 $668,793 $503,914
1997 acquisitions in the aggregate 0 37,03732,260 0 69,296
1998 acquisitions in the aggregate 21,967 51,258
-------------- -----------34,820 98,727 107,078 203,187
-------- -------- -------- --------
Net sales, pro forma 296,672 300,327
-------------- -----------384,879 381,461 775,871 776,397
-------- -------- -------- --------
Cost of sales, as reported
216,194 165,398279,632 193,484 529,319 391,330
1997 acquisitions in the aggregate 0 29,87526,545 0 56,419
1998 acquisitions in the aggregate 17,768 40,923
-------------- -----------26,449 82,517 83,633 167,015
-------- -------- -------- --------
Cost of sales, pro forma 233,962 236,196
-------------- -----------306,081 302,546 612,952 614,764
-------- -------- -------- --------
Gross profit, as reported $ 58,51170,427 $ 46,634
-------------- -----------
-------------- -----------
21.3% 22.0%56,990 $139,474 $112,584
-------- -------- -------- --------
-------- -------- -------- --------
20.1% 22.8% 20.9% 22.3%
Gross profit, pro forma $ 62,71078,798 $ 64,131
-------------- -----------
-------------- -----------
21.1% 21.4%78,915 $162,919 $161,633
-------- -------- -------- --------
-------- -------- -------- --------
20.5% 20.7% 21.0% 20.8%
1215
RESULTS OF OPERATIONS
U.S. ENVELOPE
The following table presents historical financial data for the U.S.
Envelope operations of the Company including acquisitions from their purchase
dates.
QUARTER ENDED MARCH 31,JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------- -------------------------
1998 1997 -----------------------------------------------------------------------------------1998 1997
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) $ % $ % -----------------------------------------------------------------------------------$ % $ %
- -------------------------------------------------------------------------------------------------------------------
Net sales $172,202sales............................ $162,069 100.0 $139,700$139,677 100.0 $334,271 100.0 $279,377 100.0
Cost of sales 135,619 78.7 108,323sales........................ 129,333 79.8 108,325 77.5 264,952 79.3 216,648 77.5
Operating expenses 19,222 11.2 16,733expenses................... 17,234 10.6 16,738 12.0 ---------36,456 10.9 33,471 12.0
-------- ----- --------- -------------- ----- -------- ----- -------- -----
Operating incomeincome..................... $ 17,361 10.115,502 9.6 $ 14,64414,614 10.5 ---------$ 32,863 9.8 $ 29,258 10.5
-------- ----- --------- ------
----------------- ----- --------- -------------- ----- -------- -----
-------- ----- -------- ----- -------- ----- -------- -----
QUARTER ENDED MARCH 31,JUNE 30, 1998 COMPARED TO QUARTER ENDED MARCH 31,JUNE 30, 1997
NET SALES -- Net sales increased by $32.5$22.4 million (23.3%(16.0%) for the
quarter ended March 31,June 30, 1998 compared to the quarter ended March 31,June 30, 1997, due
primarily to acquisitions. Excluding acquisitions, the average selling price
per thousand units decreased 3.4%$0.60 (3.1%) to $18.80$18.48 for the quarter ended
March 31,June 30, 1998, from the same period in the prior year. However in envelope
operations, because of itsthe Company's historical ability to pass through paper
cost fluctuations to customers, the Company uses volumes of units sold and material gross
margin (that is, net sales less net cost of materials) per thousand unitsunit as revenue
trend indicators in its
envelope operations. Againindicators. Unit volume of 7.3 billion units, excluding acquisitions,
unit volume increased
6.9% to 7.7 billion units in the firstsecond quarter of 1998 from 7.2 billion units
in the same quarter inwas flat compared to 1997. Material gross margin per
thousand units, excluding acquisitions, decreased 4.3%$0.48 (4.3%) to $10.79$10.61 in
the firstsecond quarter of 1998 from $11.27 in the year-ago period. Overall material gross margin dollars
increased 24.8% in the first quarter of 1998 comparedperiod, due to the same period in
1997, with 22.7% of this increase coming from acquisitions.generally
soft market conditions and competitive pricing pressure.
COST OF SALES -- Total cost of sales, as a percentage of sales,
increased 2.3% from 77.5% in the first quarter ofthree months ended June 30, 1997, to 78.7%79.8%
in the firstsecond quarter of 1998, primarily as a result of the decrease in
average selling price. Cost of sales includes materials, net of waste
recovery revenue, labor, depreciation and other manufacturing costs. NetAs
discussed above changes in material cost, as a percent of sales,
decreased from 42.1% for the first quarter of 1997costs have historically been passed
through to 41.3% for the first
quarter of 1998.customers. All other manufacturing costs, as a percent of sales,
increased to 37.4%37.1% in the firstsecond quarter of 1998 from 35.5%35.7% in the firstsecond
quarter of 1997. The majority of this shift is1997, mainly due to sales mix changes
resulting fromthe impact of acquisitions. Excluding
acquisitions, net material cost, as a
percent of sales,all other manufacturing costs per thousand units increased 0.5%only
0.7% to 42.6%$6.86 in the firstsecond quarter of 1998 from the year earlier period due
to increased paper costs. Again excluding
acquisitions, all other manufacturing costs offset by efficiency improvements.
OPERATING EXPENSES -- Operating expenses decreased 0.3% to 29.6%10.6% of sales in
the firstsecond quarter of 1998 from the year earlier period due to efficiency
improvements attributable to ongoing consolidation activities and new
equipment installations.
OPERATING EXPENSES -- For the first quarter ended March 31, 1998,
operating expenses decreased to 11.2% of sales from 12.0% of sales in the same period in 1997. This
decline is due to the continuing consolidation and reorganization of ourthe
Company's envelope operations including acquisitions.
13SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
NET SALES -- Net sales increased by $54.9 million (19.6%) for the six
months ended June 30, 1998 compared to the six months ended June 30, 1997,
due primarily to acquisitions. Excluding acquisitions, the average selling
price per thousand units decreased $0.62 (3.2%) to $18.65 for the six months
ended June 30, 1998, from the same period in the prior year. However, because
of the Company's historical ability to pass through paper cost fluctuations
to customers, the Company uses units sold and material margin per unit as
revenue trend indicators. Unit volume of 15.0 billion units, excluding
acquisitions, in the six months ended June 30, 1998, represented a 3.2%
increase compared to the same period in 1997. Material margin per thousand
units, excluding acquisitions, decreased $0.48 (4.3%) to $10.70 in the six
months ended June 30, 1998, from the year-ago period, due to competitive
price pressures.
16
COST OF SALES -- Total cost of sales, as a percentage of sales,
increased 1.8% from 77.5% in the first six months of 1997 to 79.3% in the
first six months of 1998, primarily as a result of the decrease in average
selling price. Cost of sales includes materials, net of waste recovery
revenue, labor, depreciation and other manufacturing costs. As discussed
above changes in material costs have historically been passed through to
customers. All other manufacturing costs, as a percent of sales, increased to
37.3% in the six months ended June 30, 1998, from 35.6% in the first half of
1997, due to a combination of the decrease in average selling price and the
impact of acquisitions. Excluding acquisitions, all other manufacturing costs
per thousand units decreased 1.6% to $6.75 in the six months ended June 30,
1998, from the year earlier period due to efficiency improvements partially
offset by increased costs.
OPERATING EXPENSES -- Operating expenses decreased to 10.9% of sales in
the six months ended June 30, 1998, from 12.0% in the same period in 1997.
This decline is due to the continuing consolidation and reorganization of the
Company's envelope operations including acquisitions.
CANADIAN ENVELOPE
The following table presents financial information with respect to the
Canadian Envelope operations (Supremex), including acquisitions from their purchase
dates. All amounts are in U.S. dollars.
QUARTER ENDED MARCH 31,JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------- -------------------------
1998 1997 -----------------------------------------------------------------------------------1997 1998
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) $ % $ % -----------------------------------------------------------------------------------$ % $ %
- -------------------------------------------------------------------------------------------------------------------
Net sales $28,197sales............................ $28,476 100.0 $31,616$27,466 100.0 $56,673 100.0 $59,082 100.0
Cost of sales 20,146 71.5 22,777 72.0sales........................ 20,070 70.5 19,017 69.2 40,216 71.0 41,794 70.7
Operating expenses 3,556 12.6 4,570expenses................... 3,751 13.2 4,176 15.2 7,307 12.9 8,746 14.8
------- ----- ------- ----- ------- ----- ------- -----
Operating income..................... $ 4,655 16.3 $ 4,273 15.6 $ 9,150 16.1 $ 8,542 14.5
---------------- ----- --------- ------
Operating income $ 4,495 15.9 $ 4,269 13.5
---------------- ----- --------- ------
---------------- ----- --------- ------------- -----
------- ----- ------- ----- ------- ----- ------- -----
QUARTER ENDED MARCH 31,JUNE 30, 1998 COMPARED TO THE QUARTER ENDED MARCH 31,JUNE 30, 1997
NET SALES -- Net sales for the firstsecond quarter of 1998 were down 10.8%up 3.7%
compared to the firstsecond quarter of 1997. The average selling price was down
8.3% primarily due to1997 despite a 5.0%4.0% reduction in the
average exchange rate in the firstsecond quarter of 1998 compared to the same
period in 1997. The average selling price in Canadian dollars increased 6.1%
in the second quarter of 1998 compared to the year ago quarter but was
diluted by the reduction in the average exchange rate previously discussed.
Again, due to the ability to pass through material cost changes to customers,
the Company primarily uses unit sales and material gross margin (that is, net sales
less net cost of materials) per thousand unitsunit as revenue trend indicators in its
envelope operations. Unit sales declined 2.0%increased 1.8% to 1.51.4 billion in the firstsecond
quarter of 1998 from the firstsecond quarter of 1997, which is attributable to
exiting certain low margin markets served by PNG prior to acquisition.1997. Material gross margin per thousand
units decreased 5.7%1.0% in the firstsecond quarter of 1998 compared to the firstsecond
quarter of 19981997, due primarily to the 5.0%
reduction in the average exchange rate.generally soft market conditions and competitive
pricing pressures.
COST OF SALES -- Total cost of sales, as a percentage of sales,
decreasedincreased from 72.0%69.2% in the firstsecond quarter of 1997 to 71.5%70.5% in the firstsecond
quarter of 1998. Cost of sales includes materials, net of waste recovery
revenue, labor, depreciation and other manufacturing costs. NetAs discussed
previously material cost changes have historically been passed through to
customers. All other manufacturing costs, as a percent of sales, increased to 45.0%decreased
2.6% in the first quarter of 1998 compared to 44.1%
in the first quarter of 1997 due to increased paper costs. All other
manufacturing costs however decreased, as a percent of sales, 1.4% in the
firstsecond quarter of 1998 compared to the same period in 1997,
primarily due to the successful integration of PNG and Blue Line operations
with Supremex.
OPERATING EXPENSES - As a percentage of net sales, operating expenses
decreased to 12.6%13.2% for the quarter ended March 31,June 30, 1998, from 14.5%15.2% in the
same quarter of 1997. Operating expenses decreased 22.2% in the first quarter
of 1998 compared to the prior year periodThis represents a 13.2% decrease which is also due to
the complete assimilation of the PNG and Blue Line operations, as well as
continuing efficiency improvements.
17
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
NET SALES -- Net sales for the six months ended June 30, 1998, decreased
4.1% compared to the six months ended June 30, 1997, due primarily to a 4.5%
reduction in the average exchange rate between the periods. As previously
discussed the Company primarily uses unit sales and material margin (that is,
net sales less net cost of materials) per unit as revenue trend indicators in
its envelope operations. Unit sales increased 0.4% to 3.0 billion in the six
months ended June 30, 1998 from the year ago period. Material margin per
thousand units decreased 3.9% in the six months ended June 30, 1998, compared
to the first half of 1997, due to mix changes resulting from acquisitions and
competitive price pressure.
COST OF SALES -- Total cost of sales, as a percentage of sales,
increased from 70.7% in the first six months of 1997 to 71.0% in 1998. Cost
of sales includes materials, net of waste recovery revenue, labor,
depreciation and other manufacturing costs. As discussed previously material
cost changes have historically been passed through to customers. All other
manufacturing costs, as a percent of sales, decreased 2.0% in the first six
months of 1998 compared to the same period in 1997, primarily due to the
successful integration of PNG and Blue Line operations with Supremex.
OPERATING EXPENSES - As a percentage of net sales, operating expenses
decreased to 12.9% for the six months ended June 30, 1998, from 14.8% in the
same period of 1997. This represents a 12.8% decrease which is also
attributable to the complete assimilation of the PNG and Blue Line
operations, as well as continuing efficiency improvements.
HIGH IMPACT COLOR PRINTING
The following table presents financial information with respect to the
High Impact Color Printing (GAC) operations including acquisitions from their
purchase dates.
QUARTER ENDED MARCH 31,
-------------------------JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 -----------------------------------------------------------------------------------1998 1997
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) $ % $ % -----------------------------------------------------------------------------------$ % $ %
- -------------------------------------------------------------------------------------------------------------------
Net sales $48,684sales............................ $70,973 100.0 $40,716$40,339 100.0 $119,657 100.0 $81,055 100.0
Cost of sales 39,315 80.8 33,702 82.8sales........................ 59,829 84.3 33,319 82.6 99,144 82.9 67,021 82.7
Operating expenses 6,821 14.0 5,165 12.7
---------expenses................... 8,643 12.2 5,255 13.0 15,464 12.9 10,420 12.9
------- ----- --------- ------------- ----- -------- ----- ------- -----
Operating incomeincome..................... $ 2,548 5.22,501 3.5 $ 1,849 4.5
---------1,765 4.4 $ 5,049 4.2 $ 3,614 4.4
------- ----- --------- ------
---------------- ----- --------- -------------- ----- ------- -----
------- ----- ------- ----- -------- ----- ------- -----
14
QUARTER ENDED MARCH 31,JUNE 30, 1998 COMPARED TO THE QUARTER ENDED MARCH 31,JUNE 30, 1997
NET SALES -- Net sales increased by $8.0$30.6 million (19.6%(75.9%) for the
first
quarter ofended June 30, 1998 compared to the first quarter ofended June 30, 1997. ThisThe
increase in net sales includes $9.9$23.9 million of net sales related to
acquisitions, which is
offsetaugmented by a $1.9$6.7 million decrease in net sales at other print facilities,
primarily Indianapolis and San Francisco. Continuing declines in the computer
book segment, due to higher utilization of electronic medium, is the major
factor in San Francisco, while a temporary decrease in volumes with a single
customer is the reason for reduced sales in Indianapolis.(16.6%) internal growth.
COST OF SALES -- CostTotal cost of sales, expressedas a percent of sales, increased
1.7% from 82.6% in the second quarter of 1997 to 84.3% in the second quarter
of 1998. Paper costs, as a percent of sales, increased 5.2% in the second
quarter of 1998 compared to the year ago period due to an increase in
customer-specified paper and the impact of acquisitions. Other manufacturing
costs, as a percent of sales, decreased to
80.8%3.5% in the first quarter of 1998 from 82.8% in the year-ago quarter.
Increased list paper prices, due to product mix variations, had a negligible
effect resulting in a 0.3% decrease in overall material costs, expressed as a
percent of sales, in the first quarter of 1998 compared to the year-ago
quarter. Other manufacturing costs decreased 1.7% to 44.6% of sales in the
firstsecond quarter of 1998
compared to the prior year firstsecond quarter. This reduction is the result of
continuing manufacturing improvements and the assimilation of acquisitions
into GAC's management systems.
OPERATING EXPENSES -- As a percent of sales, operating expense increaseddecreased
0.8% from 12.7%13.0% in the firstsecond quarter of 1997 to 14.0%12.2% in the firstsecond quarter
of 1998. Selling expenses,This cost improvement came from administrative expense savings,
primarily reduced professional fees and bad debt expense.
18
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
NET SALES -- Net sales increased by $38.6 million (47.6%) for the six
months ended June 30, 1998 compared to the six months ended June 30, 1997.
The increase in net sales includes $34.1 million attributable to acquisitions
and $4.5 million (5.5%) from internal growth. Again the internal sales growth
was attained despite competitive price pressures which were largely offset by
manufacturing cost savings.
COST OF SALES -- Total cost of sales, as a percent of sales, increased
1.8% to 10.6%0.2% from 82.7% in the first quarterhalf of 1997 to 82.9% in the first half of 1998.
Paper costs, as a percent of sales, increased 2.7% in the six months ended
June 30, 1998 compared to the year ago period due to the additionsales price
declines, as well as an increase in customer-specified paper and the impact
of sales staff in our effort to increase market share. Administrative expensesacquisitions. Other manufacturing costs, as a percent of sales, decreased
0.8% as a result of assimilating acquisitions
and continuing efficiency improvements.
CORPORATE EXPENSES
COST OF SALES -- OPERATING LEASE EXPENSES - To maintain consistency within
and between the operating segments the Company treats major equipment
additions as purchases at the operating segment level. Adjustments are made
at the corporate level for equipment financed under operating lease
commitments to comply with appropriate accounting treatment. The decline in
the net cost differential recorded at the corporate level for operating lease
reclassifications2.5% in the first quarter of 1998 compared to 1997 is the result
of transferring a large share of the operating leases to a new lessor under
more favorable lease rates.
OPERATING EXPENSES -- Total operating expenses decreased by $0.6 million to
$3.1 million in the first quarter of 1998 compared to $3.7 million in the
first quarter of 1997. Included in corporate operating expense is
amortization expense relating to goodwill, which increased $0.6 million in
the first quartersix months of 1998 compared to the prior year ago period asperiod. This
reduction is the result of ongoing acquisition activity. Also includedcontinuing manufacturing improvements and
successful assimilation of acquisitions into GAC's management systems.
OPERATING EXPENSES -- As a percent of sales, operating expense were flat
at 12.9% in operating expenses is the (gain) loss on disposalfirst six months of assets amounting1998 and 1997. Administrative cost
savings as a result of efficiency improvements and assimilation of
acquisitions are offset by increases in selling costs.
COMMERCIAL PRINTING
The following table presents financial information with respect to ($0.5) and $0.9the
Commercial Printing operations as a result of the merger effective May 30,
1998 accounted for using the pooling of interests method whereby prior period
results of the combining companies are consolidated for all periods presented.
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------- -------------------------
1998 1997 1997 1998
- ---------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) $ % $ % $ % $ %
- ---------------------------------------------------------------------------------------------------------------
Net sales............................ $38,634 100.0 $40,466 100.0 $79,703 100.0 $79,294 100.0
Cost of sales........................ 29,683 76.8 30,252 74.8 60,726 76.2 60,552 76.4
Operating expenses................... 6,964 18.0 7,129 17.6 14,099 17.7 13,979 17.6
------- ----- ------- ----- ------- ----- ------- -----
Operating income..................... $ 1,987 5.2 $ 3,085 7.6 $ 4,878 6.1 $ 4,763 6.0
------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- -----
QUARTER ENDED JUNE 30, 1998 COMPARED TO THE QUARTER ENDED JUNE 30, 1997
NET SALES -- Net sales declined by $1.8 million respectively(4.5%) for the firstquarter
ended June 30, 1998 compared to the quarter ended June 30, 1997. The sales
decline is attributable to a generally soft market in the second quarter of
1998 and continued pricing pressures due to competition.
COST OF SALES -- Total cost of sales, as a percent of sales, increased
2.0% from 74.8% in the second quarter of 1997 to 76.8% in the second quarter
of 1998. This is primarily the result of price declines as well as the
management focus on merger issues in the second quarter of 1998.
OPERATING EXPENSES -- As a percent of sales, operating expense increased
0.4% from 17.6% in the second quarter of 1997 to 18.0% in the second quarter
of 1998, although the actual expense declined $165,000 as a result of
efficiency improvements instituted to offset sales price declines.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
NET SALES -- Net sales increased by $0.4 million (0.5%) for the six
months ended June 30, 1998 compared to the six months ended June 30, 1997.
The gain on disposaltotal sales dollar improvement was hampered by price declines as a result
of assetscompetitive pressures and diversion of management attention to the second
quarter merger.
19
COST OF SALES -- Total cost of sales, as a percent of sales, decreased
0.2% from 76.4% in the first half of 1997 to 76.2% in the first half of 1998.
Additional cost improvements were affected by management focus on the second
quarter merger transaction.
OPERATING EXPENSES -- As a percent of sales, operating expense increased
0.1% from 17.6% in the first six months of 1997 to 17.7% in the first half of
1998. The increase is due to increased selling costs partially offset by
efficiency improvements.
BUSINESS COMMUNICATION PRINTING
The business communications segment was initiated with the Poser
acquisition on January 6, 1998. The 1997 financial results for this segment
are those of IPC Graphics which was part of the mergers completed on May 30,
1998 relatesand accounted for under the pooling of interest method under which prior
year periods are restated.
LABEL PRINTING
The label printing segment was established via the MW Label acquisition
on March 10, 1998.
CORPORATE EXPENSES
MERGER EXPENSES - Expenses of $771,000 and $3,002,000 were incurred for
the three and six months ended June 30, 1998 related to the merger
transactions completed May 30, 1998.
AMORTIZATION EXPENSE -- Amortization expense increases of $1,110,000 and
$1,749,000 for the three and six months ended June 30, 1998 compared to 1997
are the result of increased goodwill from acquisition activity in 1997 and
1998.
GAIN (LOSS) ON DISPOSAL OF ASSETS --The gains of $272,000 and $750,000
for the three and six months ended June 30, 1998 relate primarily to the
disposal of an excess warehouse facility in Portland offset by minor losses arising from otherand net gains on
equipment disposals. The majority of the first quarter 1997 loss on disposal of assets of $83,000 and $943,000
for the three and six months ended June 30, 1997 primarily relates to
building and equipment losses arising from the closing of the Pittsburgh
warehouse and reorganizations of the plants in Salt Lake City and Chicago.
Other corporate operating expenses increased only $0.1
million in the first quarter of 1998 compared to the same period in 1997.
INTEREST EXPENSE-DEBT -- Interest expense increased $1.0 million in the
first quarter of 1998 compared to the first quarter of 1997 primarily as a
result of the issuance in November 1997 of the Convertible Subordinated Notes
in the amount of $152.1 million. The first quarter 1998 interest expense of
$1.9 million on the Convertible Subordinated Notes is offset by lower
interest expense on bank borrowings attributable to lower average bank debt
balances for the first quarter of 1998 compared to the year-ago period and
lower average interest rates. The average outstanding bank debt was $77.8
million in the first quarter of 1998 compared to $132.4 million in the first
quarter of 1997. The related average interest rate was 5.64% for the first
quarter of 1998 compared to 7.65% for the first quarter of 1997.
INTEREST EXPENSE-AMORTIZATIONEXPENSE AND AMORTIZATION OF DEFERRED FINANCING COSTS -- The
Company wrote off deferred financing costs of $6.1 million relating to bank
debt which was repaid in November 1997, which accounts for theresulted in a $652,000 and
$1,308,000 decrease in the amortization of deferred financing costs in the
first quarter ofthree and six months ended June 30, 1998 compared to 1997. This expense
decrease was offset by increased interest expense as a result of increased
borrowings, principally the first quarterissuance in November 1997 of 1997.
15
DISCOUNT ON SALE OF ACCOUNTS RECEIVABLE -- Thisthe Convertible
Subordinated Notes in the amount represents expenses
related toof $152.1 million, as well as increased fees
under the accounts receivable securitization program including interest
and associated utilization fees. The average receivables sold under this
agreementdue to increased
activity in the first quarter of 1998 were $44.3 million compared to $71.0
million in the first quarter of 1997 accounting for the decrease in expense
in the first quarter of 1998.
OTHER (INCOME) EXPENSE -- This line item includes interest income earned
from the investment of funds in cash equivalents of $0.2 million in both the
first quarter of 1998 and 1997. Also in the first quarter of 1997 a $0.3
million foreign exchange gain was included in this line.
INCOME TAXES -- The effective income tax rate for the first quarter of 1998 and
1997 was 42.6% and 42.5%, respectively. The effective tax rate for bothall periods was higher
than the federal statutory rate due to state and provincial income taxes. Additionally,taxes and
certain goodwill amortization and a portion of the employee stock ownership
contribution that are not tax deductible. The effective tax rate also
reflects the impact of merging various Commercial Printing companies that had
elected nontaxable status prior to the merger. For periods subsequent to the
mergers, the Company expects its effective income tax rate to be
approximately 43%.
20
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL CASH FLOW -- Net cash used inprovided by operating activities was
$2.5$31.9 million for the first quartersix months of 1998 as compared to $11.5$42.6 million provided
by operating activities
in the first quarter ofsame period for 1997. This reduction in cash
flow is attributable to a $14.0 million decrease in accounts receivables sold
under the securitization program as bank debt was restructured and we had
less need to sell accounts receivable. Capital expenditures totaled $12.9$31.3 million for
the first quartersix months of 1998 as compared to $5.6$21.9 million for the first quartersix
months of 1997.1997, mainly due to the capital expenditures of companies acquired.
Acquisition costs totaled $140.9$254.6 million in the first quartersix months of 1998
compared to $0.2$6.8 million in the first quartersix months of 1997.
COMMON STOCK ISSUANCE -- In February 1998 the Company sold 4,864,600
shares of its Common Stockcommon stock at a price of $19.625 per share adjusted for the 2:1
split, through a group of
underwriters led by Prudential Securities Incorporated. ProceedsNet proceeds from the
sale of stock of $91.2 million were used for general corporate purposes.
An additional $0.8 million inAdditional proceeds was
received onhave resulted from the exercise of options in the first quarter of 1998.
DEBT OBLIGATIONS -- In March 1998 the Company closed a new five-year
unsecured line of credit for up to $300.0 million with the Bank of America,
the lead agent for a syndicate of banks, at an interest rate of LIBOR plus a
margin based on our leverage ratio. The effective interest rate at March 31,
1998, was 5.375% and the available credit under this facility was $209.8
million. Bank borrowings at March 31, 1998, were $90.2 million compared to
$131.9 million at March 31, 1997. The Senior Subordinated Notes outstanding
of $85.0 million, at an interest rate of 10.5%, remained unchanged from March
31, 1997, to March 31, 1998. In November 1997 the Company issued Convertible
Subordinated Notes in the amount of $152.1 million, with an interest rate of
5.0%. The Convertible Subordinated Notes constitute unsecured subordinated
obligations of the Company and they are convertible at the option of the
holder into common stock of the Company at a conversion price of $38.00 per
share, or $19.00 per share after the 2:1 stock split effective June 1, 1998.
Proceeds from the Convertible Subordinated Notes were used to pay off
existing bank debt with a higher interest rate.options.
CAPITAL REQUIREMENTS -- The Company estimates that, based on current
utilization of its existing equipment and expected demand, it will spend
approximately $30.0$35.0 to $35.0$40.0 million per year on capital expenditures
exclusive of acquisitions. In addition the Company expects to spend and
capitalize approximately $7.0 to $9.0 million in 1998 and 1999 to upgrade its
existing computer systems. The Company completed an assessment of allexisting
computer systems in 1997 addressing "Year 2000" among other issues. The
Company is in the process of updating the assessment of "Year 2000" issues to
include companies acquired in 1998. Management presently believes that with
the planned modifications to existing software in process and conversions to
new software, as discussed above, the "Year 2000" issues will be largely
mitigated. The estimated expense to modify existing software for "Year 2000"
is not considered material. The Company expects to use net cash from
operations and/or bank and leasing company borrowings to fund these
expenditures.
16
RECENT DEVELOPMENTS
POSTAL RATE INCREASE -- The U.S. Postal Service announced proposed rate
increases of approximately 4% for direct mail and 3% for first class mail.
In addition, a 6% rate decrease was proposed for prepaid, courtesy reply
envelopes. The proposed postal rate increases are significantly less than the
cumulative rate of inflation since the last postal rate increases.
Management does not anticipate that these postal rate increases will go into
effect until late 1998 or early 1999 and, if implemented, does not anticipate
they will negatively impact mail volume.
AUTHORIZED CAPITAL STOCK -- At the April 29, 1998, annual stockholders
meeting the shareholders approved an amendment to the Articles of
Incorporation increasing the number of shares of common stock authorized for
issuance from 30,000,000 to 100,000,000 shares.
ACQUISITIONS -- Acquisitions pending or closed subsequent to March 31,June 30,
1998, are as follows, Effective July 31, 1998, the Company acquired Graphics
Illustrated, Inc. and its affiliate Digital X-Press located in West Palm
Beach, Florida. The combined companies had 1997 sales of approximately $10
million and the closing is expected in August.
On March 23,August 10, 1998, the Company announced that it had signed a letter of
intentagreed to acquire
International Paper's Label Division located in Bowling Green,
KY. The DivisionMcLaren, Morris & Todd Limited of Mississauga, Ontario, Canada. McLaren,
Morris and Todd Limited, a general commercial and label printer, had 1997
sales of approximately $30U.S. $34 million and the acquisition
was completed on May 11, 1998.
On April 8, 1998, the Company announced that it had acquired Blue Line
Envelope, based(C$50 million). Closing is expected
in Montreal, Canada. Blue Line, an envelope manufacturer for
office products outlets and stationers in Canada, had 1997 sales of
approximately $6 million.
On April 21, 1998, the Company acquired South Press, Inc., a high quality
printer based in Dallas, TX. South Press had 1997 sales of approximately $12
million.
On April 28, 1998, the Company announced the signing of a definitive
agreement to acquire Anderson Lithographic, a leading high impact commercial
printer specializing in annual reports, automobile brochures and promotional
materials. Anderson Lithographic is based in Los Angeles, CA, and had 1997 sales
approximating $135 million. The acquisition is still pending final agreement.
On May 5, 1998, the Company acquired the Century Index Corporation, a
manufacturer of filing products located in Anaheim , CA. Century had 1997 sales
of approximately $8 million.August.
ITEM 3.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK --None
PART II -- OTHER INFORMATION
ITEM 1.--LEGAL PROCEEDINGS -- None
ITEM 2.--CHANGES IN SECURITIES -- None
ITEM 3.--DEFAULTS UPON SENIOR SECURITIES -- None
ITEM 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS-- NoneHOLDERS
On April 29, 1998, the Company held its Annual Meeting of Stockholders,
at which the following matters were voted upon:
ELECTION OF DIRECTORS--The following individuals were re-elected to the
Board of Directors; Gerald F. Mahoney, Paul V. Reilly, Frank P. Diassi,
J. Bruce Duty, Frank J. Hevrdejs and Jerome W. Pickholz.
1998 INCENTIVE STOCK OPTION PLAN--The Company's 1998 Incentive Stock
Option Plan was approved by the following vote: 10,964,638 For, 6,007,700
Against, 99,227 Abstentions.
21
AMENDMENT OF ARTICLES OF INCORPORATION--An amendment to the Company's
Articles of Incorporation increasing the number of authorized shares from
30,000,000 to 100,000,000 was approved by the following vote: 10,903,013 For,
6,071,880 Against, 96,672 Abstentions.
SELECTION OF AUDITORS--The selection of Deloitte & Touche, LLP as
independent auditors of the Company for the fiscal year ending 1998 was
ratified by the following vote: 16,981,661 For, 10,325 Against, 79,579
Abstentions.
ITEM 5.--OTHER INFORMATION - NONE
1722
ITEM 6.--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
2 Articles of Merger
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3(i) Articles of Incorporation of the Company - incorporated by reference
from Exhibit 3(i) of the Company's Form 10-Q for the quarter ended
June 30, 1997.
3(i)(a)* Amendment to effect reincorporation of the Company in
Colorado effective May 30, 1997
3 (i) Articles of Incorporation of the Company
3 (ii) Bylaws of the Company
4.1* Form of Certificate representing the Common Stock, par value $0.01 per
share, of the Company.
3(ii) Bylaws of the Company - incorporated by reference from Exhibit 3.4 of
the Company's Registration Statement on Form S-1 dated September 21,
1995.
4.1 Form of Certificate representing the Common Stock, par value $0.01 per
share, of the Company - incorporated by reference from Exhibit 4.1 of
the Company's Amendment No. 1 to Form S-3 dated October 29, 1997 (Reg.
No. 333-35561).
4.2 Indenture dated February 24, 1994 by and between the Company and
Shawmut Bank, National Association, as Trustee, with respect to the
$39,500,000 in aggregate principal amount of Original Senior Deferred
Coupon Notes and Exchange Senior Deferred Coupon Notes due 2006,
including the form of Deferred Coupon Note - incorporated by reference
from Exhibit 4.2 of the Company's Registration Statement on Form S-1
dated March 25, 1994.
4.3 Indenture dated as of February 24, 1994 by and between M-W Corp. and
Shawmut Bank, National Association, as Trustee, with respect to the
10-1/2% Original Senior Subordinated Notes and the 10-1/2% Exchange
Senior Subordinated Notes due 2004, including the form of Note and the
guarantees of the Company, Wisco and Pavey - incorporated by reference
from Exhibit 4.3 of the Company's Registration Statement on Form S-1
dated March 25, 1994.
4.3.1 Supplemental Indenture dated July 31, 1995 to the Indenture identified
in Exhibit 4.3 - incorporated by reference from Exhibit 4.4.1 of the
Company's Registration Statement on Form S-1 dated September 21, 1995.
4.3.2 Form of Second Supplemental Indenture to the Indenture identified in
Exhibit 4.3 - incorporated by reference from Exhibit 4.4.2 of the
Company's Registration Statement on Form S-1 dated September 21, 1995.
4.4 Form of Stockholders Agreement among the Company and certain holders
of the Common Stock effective as of February 24, 1994 and Amendment
No. 1 thereto - incorporated by reference from Exhibit 4.4 of the
Company's Registration Statement on Form S-1 dated March 25, 1994.
4.5 Form of Employee Stockholders Agreement among the Company and certain
employee holders of the Common Stock effective as of February 24, 1994
- incorporated by reference from Exhibit 4.5 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
4.6 Form of American Mail-Well Employee Stockholders Agreement among the
Company and certain holders of the Common Stock - incorporated by
reference from Exhibit 10.44 of the Company's Registration Statement
on Form S-1 dated May 9, 1995.
4.7 Form of Registration Rights Agreement among the Company and certain
holders of the Common Stock effective as of February 24, 1994 -
incorporated by reference from Exhibit 4.6 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
4.8 Form of Indenture between the Company and The Bank of New York, as
Trustee, dated November 1997, relating to the Company's $152,050,000
aggregate principal amount of 5% Convertible Subordinated Notes due
2002--incorporated by reference from Exhibit 4.2 to the Company's
Amendment No. 2 to Form S-3 dated November 10, 1997 (Reg. No.
333-36337).
4.9 Form of Supplemental Indenture between the Company and The Bank of New
York, as Trustee, dated November 1997, relating to the Company's
$152,050,000 aggregate principal amount of 5% Convertible Subordinated
Notes due 2002 and Form of Convertible Note--incorporated by reference
from Exhibit 4.5 to the Company's Amendment No. 2 to Form S-3 dated
November 10, 1997 (Reg. No. 333-36337).
10.1 Asset Purchase Agreement dated December 7, 1993 by and among GP
Envelope, G-P, M- W Corp. and the Company, as amended - incorporated
by reference from Exhibit 10.1 of the Company's Registration Statement
on Form S-1 dated March 25, 1994.
23
10.2 General Indemnity Agreement between M-W Corp. and Amwest Surety
Insurance Company together with form of Letter of Credit -
incorporated by reference from Exhibit 10.16 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
10.3 Form of Indemnity Agreement between the Company and each of its
officers and directors - incorporated by reference from Exhibit 10.17
of the Company's Registration Statement on Form S-1 dated March 25,
1994.
10.4 Form of Indemnity Agreement between Mail-Well I Corporation and each
of its officers and directors - incorporated by reference from Exhibit
10.18 of the Company's Registration Statement on Form S-1 dated March
25, 1994.
10.5 Form of M-W Corp. Employee Stock Ownership Plan effective as of
February 23, 1994 and related Employee Stock Ownership Plan Trust
Agreement - incorporated by reference from Exhibit 10.19 of the
Company's Registration Statement on Form S-1 dated March 25, 1994.
10.6 Form of M-W Corp. 401(k) Savings Retirement Plan - incorporated by
reference from Exhibit 10.20 of the Company's Registration Statement
on Form S-1 dated March 25, 1994.
10.7 Company 1994 Stock Option Plan, as amended on May 7, 1997 -
incorporated by reference from Exhibit 10.56 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.8 Form of the Company Incentive Stock Option Agreement - incorporated by
reference from Exhibit 10.22 of the Company's Registration Statement
on Form S-1 dated March 25, 1994.
10.9 Form of the Company Nonqualified Stock Option Agreement - incorporated
by from Exhibit 10.23 of the Company's Registration Statement on Form
S-1 dated March 25, 1994.
10.10 Asset Purchase Agreement dated October 31, 1994 by and between
American and M-W Corp., as amended - incorporated by reference from
Exhibit 10.30 of the Company's Registration Statement on Form S-1
dated May 9, 1995.
10.11 Share Purchase Agreement dated July 20, 1995, by and among the
shareholders of Supremex, 3159051 Canada Inc. and Schroder Investment
Canada Limited and Schroder Venture Managers (North America) Inc. -
incorporated by reference from Exhibit 10.25 of the Company's
Registration Statement on Form S-1 dated September 21, 1995.
10.12 Indemnification Escrow Agreement dated July 31, 1995, by and among
3159051 Canada Inc., Royal Trust Company of Canada and Schroder
Investment Canada Limited and Schroder Venture Mangers (North America)
Inc. - incorporated by reference from Exhibit 10.26 of the Company's'
Registration Statement on Form S-1 dated September 21, 1995.
10.13 Guaranty dated July 31, 1995, executed by M-W Corp. in favor of
Schroder Investment Canada Limited and Schroder Venture Mangers (North
America) Inc., as Agents - incorporated by reference from Exhibit
10.27 of the Company's Registration Statement on Form S-1 dated
September 21, 1995.
10.14 Securities Purchase Agreement dated as of August 2, 1995, as amended,
by and among GAC Acquisition Company, Inc., GAC and the
securityholders of GAC and McCown De Leeuw & Co., as Agents -
incorporated by reference from Exhibit 10.28 of the Company's
Registration Statement on Form S-1 dated September 21, 1995.
10.15 Guaranty dated as of August 2, 1995, by M-W Corp. in favor of McCown
De Leeuw & Co., as Agents - incorporated by reference from Exhibit
10.30 of the Company's Registration Statement on Form S-1 dated
September 21, 1995.
10.16 Asset Purchase Agreement dated April 26, 1996 by and between Quality
Park Products, Inc. and Mail-Well I Corporation - incorporated by
reference from Exhibit 1 of the Company's Form 8-K dated May 2, 1996.
10.17 Acquisition Agreement and Plan of Share Exchange by and among Graphic
Arts Center, Inc. and Shepard Poorman Communications Corporation dated
November 6, 1996-incorporated by reference from Exhibit 10.33 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1996.
10.18 Amendment No. 1 to Acquisition Agreement and Plan of Share Exchange by
and among Graphic Arts Center, Inc. and Shepard Poorman Communications
Corporation dated November 6, 1996-incorporated by reference from
Exhibit 10.34 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
24
10.19 Asset Purchase Agreement dated as of October 15, 1996 by and between
Supremex, Inc. and PNG Products, Inc. Pac National Group and PNG
Envelope Internationale, Inc.-incorporated by reference from Exhibit
10.35 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996
10.20 Master Lease Agreement dated as of August 1, 1996 between General
Electric Capital Corporation and Mail-Well, Inc., Mail-Well I
Corporation, Graphic Arts Center, Inc., Mail-Well West, Pavey Envelope
and Tag Corp., Wisco II, L.L.C and Wisco Envelope Corp-incorporated by
reference from Exhibit 10.36 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
10.21 Purchase and Contribution Agreement dated as of November 15, 1996
between Mail-Well I Corporation, Wisco Envelope Corp., Pavey Envelope
and Tag Corp., Mail-Well West, Inc., Graphic Arts Center, Inc., Wisco
III, L.L.C., Supremex, Inc., Innova Envelope, Inc., as Sellers, and
Mail-Well Trade Receivables Corp., as Purchaser-incorporated by
reference from Exhibit 10.39 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
10.22 Mail-Well Receivables Master Trust Pooling and Servicing Agreement
dated as of November 15, 199 by and between Mail-Well Trade
Receivables Corporation, Seller, Mail-Well I Corporation, Servicer,
and Norwest Bank Colorado, National Association, Trustee-incorporated
by reference from Exhibit 10.40 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
10.23 Series 1996-1 Supplement dated as of November 15, 1996 to Pooling and
Servicing Agreement, dated as of November 15, 1996, by and between
Mail-Well Trade Receivables Corporation, Seller, Mail-Well I
Corporation, Servicer, and Norwest Bank Colorado, National
Association, as Trustee on behalf of the Series 1996-1
Certificateholders-incorporated by reference from Exhibit 10.41 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1996.
10.24 Series 1996-1 Certificate Purchase Agreement dated as of November 15,
1996 among Mail-Well Trade Receivables Corporation, as Seller,
Corporate Receivables Corporation, as Purchaser, Norwest Bank
Colorado, National Association, as Trustee, and Mail-Well I
Corporation, as Servicer-incorporated by reference from Exhibit 10.42
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
10.25 Intercreditor Agreement dated as of November 15, 1996 by and among
Citicorp North America, Inc., as Securitization Company Agent, Banque
Paribas, New York Branch, as Liquidity Agent, Banque Paribas, as
Credit Lenders' Agent, Norwest Bank Colorado, National Association, as
Trustee, Mail-Well Trade Receivables Corporation, as Servicer,
originator and Mail-Well Credit Borrower, Supremex, Inc., as the
Supremex Credit Borrower and the other parties hereto-incorporated by
reference from Exhibit 10.43 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
10.26 Series 1996-1 Asset Purchase Agreement among Corporate Receivables
Corporation, the Liquidity Providers Parties hereto, Citicorp North
America, Inc., as Securitization Company Agent, Banque Paribas, New
York Branch, as Liquidity Agent, and Norwest Bank Colorado, National
Association, as trustee, dated as of November 15, 1996-incorporated by
reference from Exhibit 10.44 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
10.27 1997 Non-Qualified Stock Option Plan-- incorporated by reference from
exhibit 10.54 of the Company's Form 10-Q for the quarter ended March
31, 1997
10.28 Company's 1998 Incentive Stock Option Plan--incorporated by reference
from the Company's definitive proxy statement for the regular annual
meeting of stockholders held April 29, 1998
10.29 Credit Agreement dated as of March 16, 1998 among Mail-Well I
Corporation, certain Guarantors, Bank of America National Trust and
Savings Association, as Agent and other financial institutions party
thereto-incorporated by reference from the Company's 10-Q for the
quarter ended March 31, 1998.
10.30 Credit Agreement dated as of March 16, 1998 among Supremex Inc.,
certain Guarantors, Bank of America National Trust and Savings
Association, as Agent and other financial institutions party
thereto-incorporated by reference from the Company's 10-Q for the
quarter ended March 31, 1998.
25
10.31 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
the Company's 10-Q for the quarter ended March 31, 1998.
10.32 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
the Company's 10-Q for the quarter ended March 31, 1998.
10.33 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
the Company's 10-Q for the quarter ended March 31, 1998.
10.34 Stock Purchase Agreement dated as of December 15, 1997 among Mail-Well
I Corporation and Poser Business Forms, Inc. and other Selling
Shareholders party thereto, incorporated by reference from the
Company's report on Form 8-K dated January 6, 1998.
10.35 Asset Purchase Agreement dated as of January 31, 1998 among Lawson
Mardon Packaging USA, Inc (USA), incorporated by reference from the
Company's report on Form 8-K dated March 10, 1998.
10.36 Asset Purchase Agreement dated as of January 31, 1998 among 3014597
Nova Scotia Company and Lawson Mardon Packaging Inc. (Canada),
incorporated by reference from the Company's report on Form 8-K dated
March 10, 1998.
10.37 Agreement and Plan of Merger among Mail-Well I Corporation, Mail-Well,
Inc. and Anderson Lithograph Holding Corp. dated April 23, 1998,
incorporated by reference from the Company's report on Form 8-K dated
May 28, 1998.
10.38 Acquisition Agreement and Plan of Merger among Mail-Well, Inc.,
Mail-Well I Corporation, Color Art, Inc. and certain controlling
shareholders thereof, dated May 15, 1998, incorporated by reference
from the Company's report on Form 8-K dated May 30, 1998.
27.1* Financial Data Schedule - as of and for the three months ended June
30, 1998.
27.2* Restated Financial Data Schedule - as of and for the six months
ended June 30, 1996 and 1997, and as of and for the nine months
ended September 30, 1996 and 1997.
- incorporated by reference
from Exhibit 4.3 of the Company's Registration Statement on Form S-1
dated March 25, 1994.
4.3.1 Supplemental Indenture dated July 31, 1995 to the Indenture identified
in Exhibit 4.3 -- incorporated by reference from Exhibit 4.4.1 of the
Company's Registration Statement on Form S-1 dated September 21, 1995.
4.3.2 Form of Second Supplemental Indenture to the Indenture identified in
Exhibit 4.3 -incorporated by reference from Exhibit 4.4.2 of the
Company's Registration Statement on Form S-1 dated September 21, 1995.
4.7 Form of Registration Rights Agreement among the Company and certain
holders of the Common Stock effective as of February 24, 1994 --
incorporated by reference from Exhibit 4.6 of the Company's
Registration Statement on Form S-1 dated March 25, 1994.
10.11 Form of Indemnity Agreement between the Company and each of its
officers and directors -- incorporated by reference from Exhibit 10.17
of the Company's Registration Statement on Form S-1 dated March 25,
1994.
10.12 Form of Indemnity Agreement between M-W Corp. and each of its officers
and directors -- incorporated by reference from Exhibit 10.18 of the
Company's Registration Statement on Form S-1 dated March 25, 1994.
10.13 Form of M-W Corp. Employee Stock Ownership Plan effective as of
February 23, 1994 and related Employee Stock Ownership Plan Trust
Agreement -- incorporated by reference from Exhibit 10.19 of the
Company's Registration Statement on Form S-1 dated March 25, 1994.
10.14 Form of M-W Corp. 401(k) Savings Retirement Plan -- incorporated by
reference from Exhibit 10.20 of the Company's Registration Statement
on Form S-1 dated March 25, 1994.
10.15 Company 1994 Stock Option Plan, as amended -- incorporated by
reference from Exhibit 10.15 of the Company's Registration Statement
on Form S-1 dated September 21, 1995.
10.16 Form of the Company Incentive Stock Option Agreement -- incorporated
by reference from Exhibit 10.22 of the Company's Registration
Statement on Form S-1 dated March 25, 1994.
10.17 Form of the Company Nonqualified Stock Option Agreement --
incorporated by from Exhibit 10.23 of the Company's Registration
Statement on Form S-1 dated March 25, 1994.
10.25 Share Purchase Agreement dated July 20, 1995, by and among the
shareholders of Supremex, 3159051 Canada Inc. and Schroder Investment
Canada Limited and Schroder Venture Managers (North America) Inc. --
incorporated by reference from Exhibit 10.25 of the Company's
18
Registration Statement on Form S-1 dated September 21, 1995.
10.26 Indemnification Escrow Agent dated July 31, 1995, by and among 3159051
Canada Inc., Royal Trust Company of Canada and Schroder Investment
Canada Limited and Schroder Venture Mangers (North America) Inc. --
incorporated by reference from Exhibit 10.26 of the Company's
Registration Statement on Form S-1 dated September 21, 1995.
10.27 Guaranty dated July 31, 1995, executed by M-W Corp. in favor of
Schroder Investment Canada Limited and Schroder Venture Mangers (North
America) Inc., as Agents -- incorporated by reference from Exhibit
10.27 of the Company's Registration Statement on Form S-1 dated
September 21, 1995.
10.28 Securities Purchase Agreement dated as of August 2, 1995, as amended,
by and among GAC Acquisition Company, Inc., GAC and the
securityholders of GAC and McCown De Leeuw & Co., as Agents --
incorporated by reference from Exhibit 10.28 of the Company's
Registration Statement on Form S-1 dated September 21, 1995.
10.29 Escrow Agreement dated as of August 2, 1995, by and among GAC
Acquisition Company, Inc., GAC and securityholders of GAC and McCown
De Leeuw & Co., as Agents -- incorporated by reference from Exhibit
10.29 of the Company's Registration Statement on Form S-1 dated
September 21, 1995.
10.30 Guaranty dated as of August 2, 1995, by M-W Corp. in favor of McCown
De Leeuw & Co., as Agents -- incorporated by reference from Exhibit
10.30 of the Company's Registration Statement on Form S-1 dated
September 21, 1995.
10.32 Asset Purchase Agreement dated April 26, 1996 by and between Quality
Park Products, Inc. and Mail-Well I Corporation -- incorporated by
reference from Exhibit 1 of the Company's Form 8-K dated May 2, 1996.
10.33 Acquisition Agreement and Plan of Share Exchange by and among Graphic
Arts Center, Inc. and Shepard Poorman Communications Corporation dated
November 6, 1996 -- incorporated by reference from exhibit 10.33 of
the Company's Form 10-K for the year ended December 31, 1996.
10.34 Amendment No. 1 to Acquisition Agreement and Plan of Share Exchange by
and among Graphic Arts Center, Inc. and Shepard Poorman Communications
Corporation dated November 6, 1996-- incorporated by reference from
exhibit 10.34 of the Company's Form 10-K for the year ended December
31, 1996.
10.35 Asset Purchase Agreement dated as of October 15, 1996 by and between
Supremex, Inc. and PNG Products, Inc. Pac National Group and PNG
Envelope Internationale, Inc. -- incorporated by reference from
exhibit 10.35 of the Company's Form 10-K for the year ended December
31, 1996.
10.36 Master Lease Agreement dated as of August 1, 1996 between General
Electric Capital Corporation and Mail-Well, Inc., Mail-Well I
Corporation, Graphic Arts Center, Inc., Mail-Well West, Pavey Envelope
and Tag Corp., Wisco II, L.L.C and Wisco Envelope Corp. --
incorporated by reference from exhibit 10.36 of the Company's Form
10-K for the year ended December 31, 1996.
10.37 Third Amended and Restated Credit Agreement dated as of November 15,
1996, executed by Mail-Well I Corporation, as Borrower, and Wisco
Envelope Corp., Pavey Envelope and Tag Corp., Mail-Well West, Inc.,
Wisco II, L.L.C., Mail-Well Canada Holdings, Inc., Graphic Arts
Center, Inc. and Wisco III, L.L.C., as Guarantors, in favor of Banque
Paribas, as Agent, and the Lenders named herein -- incorporated by
reference from exhibit 10.37 of the Company's Form 10-K for the year
ended December 31, 1996.
10.38 Amended and Restated Credit Agreement dated as of November 15, 1996,
executed by Supremex, Inc., as borrower, and Mail-Well I Corporation
and Innova Envelope, Inc., as Guarantors, in favor of Banque Paribas,
as Agent, and the Lenders named herein - incorporated by reference
from exhibit 10.38 of the Company's Form 10-K for the year ended
December 31, 1996.
19
10.39 Purchase and Contribution Agreement dated as of November 15, 1996
between Mail-Well I Corporation, Wisco Envelope Corp., Pavey Envelope
and Tag Corp., Mail-Well West, Inc., Graphic Arts Center, Inc., Wisco
III, L.L.C., Supremex, Inc., Innova Envelope, Inc., as Sellers, and
Mail-Well Trade Receivables Corp., as Purchaser -- incorporated by
reference from exhibit 10.39 of the Company's Form 10-K for the year
ended December 31, 1996.
10.40 Mail-Well Receivables Master Trust Pooling and Servicing Agreement
dated as of November 15, 1995 by and between Mail-Well Trade
Receivables Corporation, Seller, Mail-Well I Corporation, Servicer,
and Norwest Bank Colorado, National Association, Trustee --
incorporated by reference from exhibit 10.40 of the Company's Form 10-
K for the year ended December 31, 1996.
10.41 Series 1996-1 Supplement dated as of November 15, 1996 to Pooling and
Servicing Agreement, dated as of November 15, 1996, by and between
Mail-Well Trade Receivables Corporation, Seller, Mail-Well I
Corporation, Servicer, and Norwest Bank Colorado, National
Association, as Trustee on behalf of the Series 1996-1
Certificateholders -- incorporated by reference from exhibit 10.41 of
the Company's Form 10-K for the year ended December 31, 1996.
10.42 Series 1996-1 Certificate Purchase Agreement dated as of November 15,
1996 among Mail-Well Trade Receivables Corporation, as Seller,
Corporate Receivables Corporation, as Purchaser, Norwest Bank
Colorado, National Association, as Trustee, and Mail-Well I
Corporation, as Servicer -- incorporated by reference from exhibit
10.42 of the Company's Form 10-K for the year ended December 31, 1996.
10.43 Intercreditor Agreement dated as of November 15, 1996 by and among
Citicorp North America, Inc., as Securitization Company Agent, Banque
Paribas, New York Branch, as Liquidity Agent, Banque Paribas, as
Credit Lenders' Agent, Norwest Bank Colorado, National Association, as
Trustee, Mail-Well Trade Receivables Corporation, as Servicer,
originator and Mail-Well Credit Borrower, Supremex, Inc., as the
Supremex Credit Borrower and the other parties hereto -- incorporated
by reference from exhibit 10.43 of the Company's Form 10-K for the
year ended December 31, 1996.
10.44 Series 1996-1 Asset Purchase Agreement among Corporate Receivables
Corporation, the Liquidity Providers Parties hereto, Citicorp North
America, Inc., as Securitization Company Agent, Banque Paribas, New
York Branch, as Liquidity Agent, and Norwest Bank Colorado, National
Association, as trustee, dated as of November 15, 1996 -- incorporated
by reference from exhibit 10.44 of the Company's Form 10-K for the
year ended December 31, 1996.
10.45 Participation Agreement dated as of November 15, 1996 among Mail-Well
I Corporation, as Lessee and Guarantor, Certain Subsidiaries of
Mail-Well I Corporation, as Subsidiary Guarantors, Paribas Properties,
Inc., as Lessor, Various Financial Institutions Identified herein, as
Equity Lenders, Various Financial Institutions Identified herein, as
Financing Lenders and Banque Paribas, as Agent for the Financing
Lenders and Equity Lenders -- incorporated by reference from exhibit
10.45 of the Company's Form 10-K for the year ended December 31, 1996.
10.46 Loan Agreement dated as of November 15, 1996 among Paribas Properties,
Inc., as Lessor, Various Financial Institutions Identified herein, as
Financing Lenders, Various Financial Institutions Identified herein,
as Equity Lenders, and Banque Paribas, as Agent for the Lenders --
incorporated by reference from exhibit 10.46 of the Company's Form
10-K for the year ended December 31, 1996.
10.47 Master Equipment Lease and Security Agreement dated November 15, 1996
between Mail-Well I Corporation, as the Lessee or Debtor and Paribas
Properties, Inc., as the Lessor or Secured Party -- incorporated by
reference from exhibit 10.47 of the Company's Form 10-K for the year
ended December 31, 1996.
20
10.48 Security Agreement (Second and Subordinated Security Interest) made
and entered into by Paribas Properties, Inc. and Mail-Well I
Corporation, as Debtors, and Banque Paribas, as Agent for Secured
Party date November 15, 1996 -- incorporated by reference from exhibit
10.48 of the Company's Form 10-K for the year ended December 31, 1996.
10.49 Appendix A to Participation Agreement, Master Lease, and Loan
Agreement -- incorporated by reference from exhibit 10.49 of the
Company's Form 10-K for the year ended December 31, 1996.
10.50 Lease Facility Guaranty dated as of November 15, 1996 made by
Mail-Well I Corporation, Mail-Well, Inc. and certain of their
Subsidiaries, as Guarantors, in favor of Various Financial
Institutions, as the Lenders, and Banque Paribas, as Agent for the
Lenders -- incorporated by reference from exhibit 10.50 of the
Company's Form 10-K for the year ended December 31, 1996.
10.51 Assignment of Lease and rent dated as of November 15, 1996 from
Paribas Properties, Inc., as Assignor to Banque Paribas, as Agent for
the Lenders, as Assignee -- incorporated by reference from exhibit
10.51 of the Company's Form 10-K for the year ended December 31, 1996.
10.52 Security Agreement (First and Prior Security Interest) made and
entered into by Paribas Properties, Inc. and Mail-Well I Corporation,
as Debtors, and Banque Paribas, as Agent for Secured Party dated
November 15, 1996 -- incorporated by reference from exhibit 10.52 of
the Company's Form 10-K for the year ended December 31, 1996.
10.53 Bill of Sale and Assignment of Equipment made and entered into on this
15th day of November, 1996 by Mail-Well I Corporation to and for the
benefit of Paribas Properties, Inc. -- incorporated by reference from
exhibit 10.53 of the Company's Form 10-K for the year ended December
31, 1996.
10.54 1997 Non-Qualified Stock Option Plan -- incorporated by reference from
exhibit 10.54 of the Company's Form 10-Q for the quarter ended March
31, 1997
10.55 1997 Non-Qualified Stock Option Agreement -- incorporated by reference
from exhibit 10.54 of the Company's Form 10-Q for the quarter ended
March 31, 1997
10.56 Company's 1994 Stock Option Plan as Amended on May 7, 1997
10.57 Company's Allied Acquisition Non-Qualified Stock Option Plan.
10.58* Mail-Well, Inc. 1998 Incentive Stock Option Plan
10.59* Mail-Well, Inc. 1998 Incentive Stock Option Plan Incentive Stock
Option Agreement
10.60* Credit Agreement dated as of March 16, 1998 among Mail-Well I
Corporation, certain Guarantors, Bank of America National Trust and
Savings Association, as Agent and other financial institutions
party thereto
10.61* Credit Agreement dated as of March 16, 1998 among Supremex Inc.,
certain Guarantors, Bank of America National Trust and Savings
Association, as Agent and other financial institutions party thereto
10.62* Participation Agreement dated as of December 15, 1997 among
Mail-Well I Corporation, Keybank National Association, as Trustee
and other financial institutions party thereto
10.63* Equipment Lease dated as of December 15, 1997 among Mail-Well I
Corporation, Keybank National Association, as Trustee and other
financial institutions party thereto
10.64* 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
10.65 Stock Purchase Agreement dated as of December 15, 1997 among
Mail-Well I Corporation and Poser Business Forms, Inc. and other
Selling Shareholders party thereto, incorporated by reference from
the Company's report on Form 8-K dated January 6, 1998
10.66 Asset Purchase Agreement dated as of January 31, 1998 among Lawson
Mardon Packaging USA, Inc (USA), incorporated by reference from the
Company's report on Form 8-K dated March 10, 1998
10.67 Asset Purchase Agreement dated as of January 31, 1998 among 3014597
Nova Scotia Company and Lawson Mardon Packaging Inc. (Canada),
incorporated by reference from the Company's report on Form 8-K
dated March 10, 1998
27.1* Financial Data Schedule - as of and for the three months ended
March 31, 1998
27.2* Financial Data Schedule - Quarters 1, 2 and 3 of 1997 and fiscal year
ended December 31, 1996
27.3* Financial Data Schedule - Quarters 1, 2 and 3 of 1996 and fiscal year
ended December 31, 1995-------------
* Filed herewith.
(b) Reports on FormREPORTS ON FORM 8-K
1. Current report filed on Form 8-K dated as of January 6,May 28, 1998 in
connection with the acquisition of Poser Business Forms, Inc.Anderson Lithograph Holding
Corp.
2. Current report on Form 8-K dated as of February 17, 1998 in connection
with the public sale of 2,432,300 shares of the Company's common stock
through a group of underwriters.
3. Current report filed on Form 8-K dated as of March 10,May 30, 1998 in connection
with the acquisition of the North American label divisioncommercial printing group.
3. Amendment to Form 8-K dated May 30, 1998 incorporating the
restated financial statements of Lawson Mardon Packaging.the Company.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
MAIL-WELL, INC.
(Registrant)
By /s/ PAUL V. REILLY
------------------------------------------------
Paul V. Reilly
President,
Chief Operating Officer
MayAugust 12, 1998
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