==========================================================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,JUNE 30, 2004
COMMISSION FILE NUMBER 1-12551
------------------------
MAIL-WELL,CENVEO, INC.
(Exact name of Registrant as specified in its charter.)
COLORADO 84-1250533
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8310 S. VALLEY HIGHWAY, #400
ENGLEWOOD, CO 80112
(Address of principal executive offices) (Zip Code)
303-790-8023
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark 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 / /
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes /X/ No / /
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of AprilJuly 29, 2004 was $109,200,148.$73,109,398.
As of AprilJuly 29, 2004 the Registrant had 48,384,78948,413,044 shares of Common Stock,
$0.01 par value, outstanding.
- ------------------------------------------------------------------------------
==============================================================================----------------------------------------------------------------------------
============================================================================
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
PAGE
----
Item 1. Condensed Consolidated Financial Statements................. 1
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 1720
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 2429
Item 4. Controls and Procedures..................................... 2529
PART II--OTHER INFORMATION
Item 5. Submission of Matters to a Vote of Securities Holders....... 30
Item 6. Exhibits and Reports on Form 8-K............................ 2630
i
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)(in thousands, except share amounts)
MARCH 31,JUNE 30, 2004
(UNAUDITED) DECEMBER 31, 2003
--------------------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..............................equivalents............................... $ 259165 $ 307
Accounts receivable, net............................... 224,034net................................ 218,588 223,541
Inventories, net....................................... 99,639net........................................ 111,278 91,402
Other current assets................................... 50,236assets.................................... 44,349 48,135
---------- ----------
TOTAL CURRENT ASSETS............................... 374,168ASSETS................................ 374,380 363,385
Property, plant and equipment, net......................... 380,328net.......................... 374,419 388,240
Goodwill................................................... 298,885Goodwill.................................................... 297,585 299,392
Other intangible assets, net............................... 18,281net................................ 17,140 19,687
Other assets, net.......................................... 40,311net........................................... 40,504 36,689
---------- ----------
TOTAL ASSETS............................................... $1,111,973ASSETS................................................ $1,104,028 $1,107,393
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................payable........................................ $ 151,188146,507 $ 140,468
Accrued compensation and related liabilities........... 53,938liabilities............ 54,421 53,209
Other current liabilities.............................. 52,102liabilities............................... 59,379 64,360
Current maturities of long-term debt................... 2,588debt.................... 2,584 2,575
---------- ----------
TOTAL CURRENT LIABILITIES.......................... 259,816LIABILITIES........................... 262,891 260,612
Long-term debt, less current maturities.................... 774,749maturities..................... 770,372 746,386
Deferred income taxes...................................... 1,507taxes....................................... -- 6,717
Other liabilities.......................................... 26,243liabilities........................................... 26,140 25,659
---------- ----------
TOTAL LIABILITIES.......................................... 1,062,315LIABILITIES........................................... 1,059,403 1,039,374
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 25,000 shares
authorized, none issued..............................issued............................... -- --
Common stock, $0.01 par value; 100,000,000 shares
authorized, 48,384,12348,413,044 and 48,380,457 shares issued
and outstanding as of March 31,June 30, 2004 and December 31,
2003, respectively...................................respectively.................................... 484 484
Paid-in capital........................................ 213,857capital......................................... 213,896 213,850
Retained deficit....................................... (166,866)deficit........................................ (168,933) (150,331)
Deferred compensation.................................. (1,569)compensation................................... (1,424) (1,714)
Accumulated other comprehensive income................. 3,752income.................. 602 5,730
---------- ----------
TOTAL SHAREHOLDERS' EQUITY......................... 49,658EQUITY.......................... 44,625 68,019
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. $1,111,973EQUITY.................. $1,104,028 $1,107,393
========== ==========
See notes to condensed consolidated financial statements.
1
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except earnings per share amounts)
THREE MONTHS ENDED MARCH 31,
-------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net sales................................................... $423,742 $427,320sales................................. $409,396 $407,826 $833,138 $835,146
Cost of sales............................................... 335,322 343,400sales............................. 325,762 328,705 661,084 672,098
-------- -------- -------- --------
Gross profit................................................ 88,420 83,920profit.............................. 83,634 79,121 172,054 163,048
Operating expenses:
Selling, general and administrative..................... 67,998 63,425administrative... 66,415 62,722 134,413 126,157
Amortization of intangibles............................. 1,405 445intangibles........... 1,396 418 2,801 863
Restructuring charges................................... 103 771charges................. 1,018 356 1,121 1,125
-------- -------- -------- --------
Operating income............................................ 18,914 19,279income.......................... 14,805 15,625 33,719 34,903
Other expense:
Interest expense........................................ 18,399 18,214expense...................... 17,513 18,119 35,912 36,333
Loss from the early extinguishment of
debt..............debt................................ -- -- 17,748 --
Other................................................... 441 132Other................................. 527 355 968 487
-------- -------- Income (loss)-------- --------
Loss from continuing operations before
income taxes and cumulative effect of a
change in accounting principle................................................. (17,674) 933principle.......... (3,235) (2,849) (20,909) (1,917)
Income tax benefit (expense)................................ 1,139 (401)expense (benefit).............. 61 (1,168) (1,078) (767)
-------- -------- Income (loss)-------- --------
Loss from continuing operations before
cumulative effect of a change in
accounting principle................ (16,535) 532
Gainprinciple.................... (3,296) (1,681) (19,831) (1,150)
Loss (gain) on disposal of discontinued
operations................. -- 2,500operations, net of taxes of $770 in
2004.................................... (1,230) 581 (1,230) (1,919)
Cumulative effect of a change in
accounting principle.......principle.................... -- (322)-- -- 322
-------- -------- -------- --------
Net income (loss)........................................... $(16,535)......................... $ 2,710(2,066) $ (2,262) $(18,601) $ 447
======== ======== ======== ========
Earnings (loss) per share--basic and
diluted:
Continuing operations...................................operations................. $ (0.35)(0.07) $ 0.01(0.04) $ (0.42) $ (0.02)
Discontinued operations................................. -- 0.05operations............... 0.03 (0.01) 0.03 0.04
Cumulative effect of a change in
accounting principle...principle................ -- -- -- (0.01)
-------- -------- -------- --------
Earnings (loss) per share--basic and
diluted................diluted................................. $ (0.35)(0.04) $ 0.06(0.05) $ (0.39) $ 0.01
======== ======== ======== ========
Weighted average shares--basic.............................. 47,739 47,668shares--basic............ 47,740 47,679 47,737 47,672
Weighted average shares--diluted............................ 47,739 48,376shares--diluted.......... 47,740 47,679 47,737 48,207
See notes to condensed consolidated financial statements.
2
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
THREESIX MONTHS ENDED MARCH 31,JUNE 30,
-----------------------------
2004 2003
----------- ---------
Cash flows from operating activities:
Income (loss)Loss from continuing operations..................operations........................... $ (16,535)(19,831) $ 532(1,150)
Adjustments to reconcile income (loss)loss from continuing operations
to net cash provided by (used in) operating activities:
Depreciation......................................... 11,465 11,723
Amortization......................................... 2,549 1,383Depreciation.......................................... 22,841 23,347
Amortization.......................................... 5,093 2,815
Write-off of deferred financing fees.................fees.................. 4,220 --
Deferred income tax benefit.......................... (4,672) (2,072)benefit........................... (7,949) (6,270)
Loss (gain) on disposal of assets.................... (39) 258assets............................ 240 581
Other noncash charges, net........................... (281) 1,012net............................ (366) 846
Changes in operating assets and liabilities, excluding
the effects of operations sold:
Accounts receivable.................................. (649) (5,716)
Inventories.......................................... (8,038) (414)receivable................................... 4,210 26,150
Inventories........................................... (20,011) 4,070
Accounts payable and accrued compensation............ 11,752 (12,668)compensation............. 7,686 (37,009)
Income taxes payable................................. (801) (2,379)payable.................................. (991) 8,808
Other working capital changes........................ (11,369) (5,388)changes......................... 211 (2,634)
Other, net........................................... (2,080) 662net............................................ (76) 605
----------- ---------
Net cash used inprovided by (used in) operating
activities............... (14,478) (13,067)activities........................................ (4,723) 20,159
Cash flows from investing activities:
Capital expenditures.................................. (5,647) (6,416)(12,460) (13,010)
Proceeds from divestitures, net....................... --2,000 3,864
Proceeds from sales of property, plant and equipment........................................... 229 515equipment.. 346 627
----------- ---------
Net cash used in investing activities............... (5,418) (2,037)(10,114) (8,519)
Cash flows from financing activities:
Proceeds from issuance of long-term debt.............. 1,174,037 485,1221,677,071 947,205
Repayments of long-term debt.......................... (1,145,661) (472,188)(1,653,074) (960,947)
Proceeds from issuance of common stock................ 7 --46 16
Capitalized loan fees................................. (8,291) (316)(8,936) (437)
----------- ---------
Net cash provided by (used in) financing
activities........... 20,092 12,618activities........................................ 15,107 (14,163)
Effect of exchange rate changes on cash and cash
equivalents................................................ (244) 180equivalents............................................... (412) 619
----------- ---------
Net decrease in cash and cash equivalents........... (48) (2,306)(142) (1,904)
Cash and cash equivalents at beginning of year.............. 307 2,650
----------- ---------
Cash and cash equivalents at end of quarter................. $ 259165 $ 344746
=========== =========
See notes to condensed consolidated financial statements.
3
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Cenveo,
Inc. (formerly known as Mail-Well, Inc.) and subsidiaries (collectively,
the "Company") have been prepared in accordance with accounting principles
generally accepted accounting principlesin the United States for interim financial statements
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the threesix months ended March 31,June 30,
2004 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2004. The balance sheet at December 31, 2003
has been derived from the audited financial statements at that date but
does not include all of the information and footnote disclosures required
by generally accepted accounting principles for complete financial
statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 2003.
The condensed consolidatedCompany's reporting periods in this report consist of thirteen and
twenty-six week periods, respectively, ending on the Saturday closest to the
last day of the calendar month. The reporting periods for 2004 and 2003
ended June 26, 2004 and June 28, 2003, respectively. For convenience, the
accompanying financial statements for the three months
ended March 31, 2003 reported in the Form 10-Q for the quarterly period
ended March 31, 2003 have been restatedshown as a resultending on the last day
of the calendar month.
On April 29, 2004, the shareholders of the Company approved the change
of the Company's adoption of the Financial Accounting Standards Board Interpretation No. 46,
Consolidation of Variable Interest Entities, an Interpretation of
Accounting Research Bulletin No. 51, ("Interpretation 46") in the second
quarter of 2003. The provisions of Interpretation 46 required the Companyname from Mail-Well, Inc. to consolidate a trust that leases equipment to the Company under an
operating lease. The effect of this consolidation was to increase net
property, plant and equipment by $18.1 million and total debt by $18.5
million on January 1, 2003. The cumulative effect of this change in
accounting principle was an after-tax charge of $0.3 million recorded
January 1, 2003.Cenveo, Inc.
2. STOCK-BASED COMPENSATION
Stock options and other stock-based compensation awards are accounted
for using the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees. This method
requires compensation expense to be recognized for the excess of the quoted
market price of the stock at the grant date or the measurement date over
the amount an employee must pay to acquire the stock.
If the Company had applied the fair value recognition provisions of
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, the Company's reported and pro forma net income
(loss) and earnings (loss) per share would have been as follows (in
thousands, except per share data):
THREE MONTHS ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
2004 2003 2004 2003
------- ------- -------- -------------
Net income (loss):
As reported....................................... $(16,535) $2,710reported............................ $(2,066) $(2,262) $(18,601) $ 447
Pro forma......................................... $(17,205) $1,824forma.............................. $(2,706) $(3,139) $(19,666) $(1,274)
Earnings (loss) per share--basic and
diluted:
As reported.......................................reported............................ $ (0.35)(0.04) $ 0.06(0.05) $ (0.39) $ 0.01
Pro forma.........................................forma.............................. $ (0.36)(0.06) $ 0.04(0.07) $ (0.41) $ (0.03)
The effect on pro forma net income (loss), earnings (loss) per
share--basic and earnings (loss) per share--diluted of expensing the
estimated fair value of stock options is not necessarily representative 4
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. STOCK-BASED COMPENSATION (CONTINUED)
of
the effect on reported earnings for future years due to the vesting period
of the stock options and the potential for issuance of additional stock
options.
4
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. STOCK-BASED COMPENSATION (CONTINUED)
Upon the issuance of restricted stock, the Company records deferred
compensation as a charge to shareholders' equity for the market value of the
restricted stock on the grant date. This deferred compensation is being
recognized as compensation expense ratably over the vesting period. The
Company recorded compensation expense in the amount of $0.1 million and $0.3
million for the three and six months ended June 30, 2004 and $0.2 million
and $0.3 million for the three and six months ended June 30, 2003.
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
INVENTORIES
The Company's inventories by major category were as follows (in
thousands):
MARCH 31,JUNE 30, DECEMBER 31,
2004 2003
----------------- ------------
Raw materials..........................................materials........................................... $ 31,04734,410 $ 28,344
Work in process........................................ 24,532process......................................... 26,910 21,483
Finished goods......................................... 49,127goods.......................................... 54,862 46,570
-------- --------
104,706116,182 96,397
Reserves............................................... (5,067)Reserves................................................ (4,904) (4,995)
-------- --------
$ 99,639$111,278 $ 91,402
======== ========
PROPERTY, PLANT AND EQUIPMENT
The Company's investment in property, plant and equipment consisted of
the following (in thousands):
MARCH 31,JUNE 30, DECEMBER 31,
2004 2003
--------- ------------
Land and land improvements............................. $ 19,75819,684 $ 20,043
Buildings and building improvements.................... 109,848109,621 109,563
Machinery and equipment................................ 515,541518,865 511,820
Furniture and fixtures................................. 16,09816,115 15,986
Construction in progress............................... 10,29111,392 9,696
--------- ---------
671,536675,677 667,108
Accumulated depreciation............................... (291,208)(301,258) (278,868)
--------- ---------
$ 380,328374,419 $ 388,240
========= =========
COMPREHENSIVE INCOME (LOSS)
A summary of the comprehensive income (loss) was as follows (in
thousands):
THREE MONTHS ENDED MARCH 31,
-------------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
2004 2003 --------- ---------2004 2003
------- ------- -------- -------
Net income (loss)...................................... $(16,535)......................... $(2,066) $(2,262) $(18,601) $ 2,710447
Other comprehensive income (loss):
Currency translation adjustment,
net.............. (1,978) 7,388net................................. (3,150) 11,099 (5,128) 18,487
------- ------- -------- -------
Comprehensive income (loss)............................ $(18,513) $10,098............... $(5,216) $ 8,837 $(23,729) $18,934
======= ======= ======== =======
5
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUPPLEMENTAL INFORMATION (CONTINUED)
AMORTIZATION EXPENSE
Amortization expense reported in the condensed statements of cash flows
includes the following:
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2004 JUNE 30, 2003
---------------- ----------------
Amortization of intangibles........................ $2,801 $ 863
Amortization of deferred financing fees............ 2,192 1,952
Other.............................................. 100 --
------ ------
Total amortization............................. $5,093 $2,815
====== ======
The amortization of deferred financing fees is included in interest
expense in the condensed consolidated statements of operations.
4. LONG-TERM DEBT
At March 31,June 30, 2004 and December 31, 2003, long-term debt consisted of the
following (in thousands):
MARCH 31,JUNE 30, DECEMBER 31,
2004 2003
----------------- ------------
Senior Secured Credit Facility, due 2008............... $ 83,92380,116 $ 73,310
Senior Notes, due 2012................................. 350,000 350,000
Senior Subordinated Notes, due 2008.................... -- 300,000
Senior Subordinated Notes, due 2013.................... 320,000 --
Other.................................................. 23,41422,840 25,651
-------- --------
777,337772,956 748,961
Less current maturities................................ (2,588)(2,584) (2,575)
-------- --------
Long-term debt...................................... $774,749debt..................................... $770,372 $746,386
======== ========
Current maturities consist of scheduled payments on other long-term
debt.
In January 2004, the Company sold $320 million of 7 7/8% senior
subordinated notes due 2013. The proceeds from the sale of these notes were
used to redeem the $300 million of 8 3/4% senior subordinated notes due
2008. The Company incurred costs of $6.9$7.1 million to issue the 7 7/8% senior
subordinated notes. These costs have been deferred and will be amortized
over the term of the notes. A loss of $17.7 million was recorded on the
early extinguishment of the 8 3/4% senior subordinated notes consisting of
redemption premiums of $13.5 million and unamortized debt issuance costs of
$4.2 million.
In March 2004, the Company amended its $300 million senior secured
credit facility due 2005 to extend its term to June 2008. The cost incurred
to amend the credit facility was $1.4$1.8 million. These debt issuance costs
will be amortized over the extended term of the facility.
As of June 30, 2004, the Company was in compliance with all of the
covenants of its various debt agreements.
GUARANTEES
On May 21, 2002, the Company sold its prime label business. The Company
continues to guarantee a lease obligation of this former business. The
guarantee requires the lessor to pursue
6
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
collection and other remedies against the buyer of this business before
demanding payment from the Company. The remaining payment under the lease
term, which expires April 2008, totals approximately $5.4 million. If the
Company were required to honor its obligation under the guarantee, any loss
would be reduced by the amount generated from the liquidation of the
equipment.
The senior notes due 2012 and the senior subordinated notes due 2013
are guaranteed by Mail-Well,Cenveo, Inc. (the "Parent Guarantor") and all of its
wholly ownedwholly-owned operating subsidiaries (the "Guarantor Subsidiaries"). The
guarantees are joint and several, full, complete and unconditional. There
are no material restrictions on the ability of the Guarantor Subsidiaries
to transfer funds to the issuing subsidiary in the form of cash dividends,
loans or advances, other than ordinary legal restrictions under corporate
law, fraudulent transfer and bankruptcy laws.
As of March 31, 2004, the Company was in compliance with all of the
covenants of its various debt agreements.
5. INCOME TAXES
The income tax benefit recorded on the loss before income taxes was
based on the effective tax rate of 5.2% for the threesix months ended March 31, 2004June 30,
2004. The Company's effective tax rate was 6.4% which was primarilynegatively impacted by the
resultestablishment of an additional valuation allowances on certain deferred tax
valuation
allowanceassets. Statement of $6.8 million recorded asFinancial Accounting Standards No. 109, Accounting for
Income Taxes, ("SFAS 109") requires the evaluation of March 31, 2004. At December 31,
2003, the Company had recordedrealizability of
deferred tax assets on a quarterly basis. SFAS 109 requires a valuation
allowance when it is more likely than not that all or a portion of $6.5deferred
tax assets will not be realized. In circumstances where there is sufficient
negative evidence with respect to the realizability of deferred tax assets,
establishment of a valuation allowance must be considered. Under provisions
of SFAS 109, the substantial losses incurred by the Company over the most
recent three-year period represent sufficient negative evidence.
Accordingly, the Company is providing an additional valuation allowance to
cover the estimated impairment of the U.S. related deferred tax asset
arising from operating losses generated in 2004.
In the second quarter of 2004, $6.4 million forof tax contingency reserves
established in prior years were deemed no longer necessary. Also in the
second quarter of 2004, the Company added $6.0 million to its valuation
allowance to cover the estimated impairment of certain capital loss
carryforwards. The Company hadThis adjustment was necessary because of changes made to the
assumptions used in the tax planning strategies available that it believed could enable it to realize
remaining net deferred tax assets. Since the Company incurred additional
net operating losses in the first quarter of 2004, it was necessary to
record a valuation allowance to reduce the estimated tax benefit from this
additional net operating loss. This valuation allowance covers the
estimated portion of the tax benefit that would not be utilized by the
reversal of existing temporary tax differences or tax planning strategies.
6
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)fully utilize its capital loss carryforwards.
6. RESTRUCTURING CHARGES
In February 2004, the commercial segment announced the closure of its
envelope manufacturing plant in Bensalem, Pennsylvania and its integration
into the Company's Philadelphia printing facility. The expenses incurred
during the threesix months ended March 31,June 30, 2004 were $0.1$1.1 million and were
primarily feesemployee separation and related to human resource issues andexpenses; expenses incurred
incidental to equipment moves.moves; and preparing the building in Bensalem for
sale. The total cost of the closure is expected to be approximately $2.2
million consisting of the following (in thousands):
Employee separation and related expenses................ $ 868875
Equipment write-downs, net.............................. 500
Equipment moving expenses............................... 225
Building clean-up and other expenses.................... 570
------
Total............................................... $2,163$2,170
======
The Company has substantially completed the restructuring programs
initiated in June 2001 and 2002.
7
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. RESTRUCTURING CHARGES (CONTINUED)
A summary of the activity charged to the 2002 restructuring liability
during the threesix months ended March 31,June 30, 2004 is as follows (in thousands):
COMMERCIAL RESALE TOTAL
---------- ------ ------
Balance, December 31, 2003............................. $1,279 $ 30 $1,309
Payments for lease termination and property exit
costs............................................ (143) (10) (153)(261) (13) (274)
Payments for other exit costs...................... (43)(86) -- (43)(86)
------ ---- ------
Balance, March 31, 2004................................ $1,093June 30, 2004................................. $ 20 $1,113932 $ 17 $ 949
====== ==== ======
A summary of the activity charged to the 2001 restructuring liability
during the threesix months ended March 31,June 30, 2004 is as follows (in thousands):
COMMERCIAL
----------
Balance, December 31, 2003.............................. $688
Payments for lease termination and property exit
costs............................................. (56)(153)
----
Balance, March 31, 2004................................. $632June 30, 2004.................................. $535
====
7. PENSION PLANS
The components of the net periodic pension cost for the Company's
pension plans and the supplemental executive retirement plans were as
follows (in thousands):
THREE MONTHS ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------------
2004 2003 2004 2003
----- ----- ------- -------
Service cost...........................................cost................................. $ 544521 $ 362 $ 1,065 $ 724
Interest cost.......................................... 711 834cost................................ 765 833 1,476 1,667
Expected return on plan assets......................... (844) (906)assets............... (812) (905) (1,656) (1,811)
Net amortization and deferral.......................... 53deferral................ 50 (47) Other..................................................103 (93)
Other........................................ -- 8382 -- 165
----- ----- ------- -------
Net periodic pension expense...........................expense................. $ 464524 $ 326325 $ 988 $ 652
===== ===== ============ =======
7
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PENSION PLANS (CONTINUED)
The Company previously disclosed in its financial statements for the
year ended December 31, 2003, that it expects to contribute $2.8 million to
its pension plans in 2004. As of March 31,June 30, 2004, contributions of $0.1$0.2
million have been made.
8
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EARNINGSLOSS PER SHARE
Basic earnings per share exclude dilution and are computed by dividing
net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share reflect the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. A
reconciliation of the amounts included in the computation of basic earnings
(loss)and
diluted loss per share and diluted earnings (loss) per sharefrom continuing operations is as follows (in
thousands, except per share amounts):
THREE MONTHS ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2004 2003 2004 2003
-------- ------- -------- -------
Numerator:
Numerator for basic and diluted earnings (loss)loss per
share--income (loss)share--loss from continuing operations........... $(16,535)operations...... $ 532(3,296) $(1,681) $(19,831) $(1,150)
======== ======= ======== =======
Denominator:
Denominator for basic earnings (loss)loss per share--weighted
average shares............................................ 47,739 47,668shares.............................. 47,740 47,679 47,737 47,672
Effects of dilutive securities:
Stock options and restricted stock......................stock........ -- 708-- -- 535
-------- ------- -------- -------
Denominator for diluted earnings (loss)loss per share--adjustedshare--
adjusted weighted average shares................................... 47,739 48,376shares............ 47,740 47,679 47,737 48,207
======== ======= Earnings (loss)======== =======
Loss from continuing operations per share:
Basic and diluted.......................................diluted......................... $ (0.35)(0.07) $ 0.01(0.04) $ (0.42) $ (0.02)
======== ======= ======== =======
In the three months ended March 31,June 30, 2004 and 2003, outstanding options
and shares of restricted stock in the amount of 6,468,0007,330,000 and 6,072,000,6,887,000,
respectively, were excluded from the calculation of diluted earningsloss per share
because the effect would be antidilutive. In the six months ended June 30,
2004 and 2003, outstanding options and shares of restricted stock in the
amount of 7,330,000 and 6,352,000, respectively, were excluded from the
calculation of diluted loss per share because the effect would be
antidilutive.
9. ASSETS HELD FOR SALE
TheDISCONTINUED OPERATIONS
In September 2000, the Company sold certain digital graphics operationsthe extrusion coating and
laminating business segment of its commercial
segmentAmerican Business Products, Inc., a company
acquired in March 2003.February 2000. The condensed consolidated statementconsideration received for this business
included an unsecured note which was fully reserved at the time of operationsthe
sale. This note was redeemed by the issuer in June 2004 for the three months ended March 31, 2003 includes sales$2.0 million.
The proceeds, net of $2.9 million
and operating incometax, have been recorded as a gain on disposal of
$0.2 million related to thesediscontinued operations.
10. DISCONTINUED OPERATIONS
During the first quarter of 2003, the Company recorded a gain on the
disposal of discontinued operations in the amount of $2.5 million. This
gain was the result of a change in the estimated tax impact of the
disposition of its prime label business, which was sold in May 2002. The
data required to determine the full tax impact of this transactiongain was not
available until 2003. The Company finalized this estimate upon filing the
final tax returnreduced by $0.6 million in the second quarter of 2003.
8
MAIL-WELL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11.2003 based on the
completion of the tax return.
10. SEGMENT INFORMATION
In October 2003, the Company reorganized into two operating segments:
commercial and resale. This reorganization alignsaligned the Company's structure
with its strategic goals. Segment information for the three and six months
ended March 31,June 30, 2003 has been restated to reflect the new operating
segments.
The commercial segment specializes in printing annual reports, car
brochures, brand marketing collateral, financial communications, general
commercial printing and the manufacturing and printing
9
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SEGMENT INFORMATION (CONTINUED)
of customized envelopes for billing and remittance and direct mail
advertising. The commercial segment also offers services such as design,
fulfillment, e-commerce and inventory management. TheseThe products and services
of the commercial segment are sold directly to national and local
customers.
The resale segment produces business forms and labels, custom and stock
envelopes and specialty packaging and mailers. These products are generally
sold through professional print distributors, business forms suppliers,
office-products retail chains and the Internet.
Operating income of each segment includes all costs and expenses
directly related to the segment's operations. Corporate expenses include
corporate general and administrative expenses. Inter-company sales for the
three months ended March 31,June 30, 2004 and 2003 were $5.2$53.3 million and $4.1$34.5
million, respectively. Inter-company sales for the six months ended June
30, 2004 and 2003 were $102.1 million and $71.4 million, respectively.
These amounts were eliminated in consolidation and excluded from reported
net sales.
The following tables present certain segment information for the three
and six months ended March 31,June 30, 2004 and 2003 (in thousands):
THREE MONTHS ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net sales:
Commercial.......................................... $323,849 $324,063
Resale.............................................. 99,893 103,257Commercial.......................... $307,583 $306,608 $631,432 $630,670
Resale.............................. 101,813 101,218 201,706 204,476
-------- -------- Total............................................... $423,742 $427,320-------- --------
Total............................... $409,396 $407,826 $833,138 $835,146
======== ======== ======== ========
Operating income (expense):
Commercial..........................................Commercial.......................... $ 11,9969,920 $ 12,481
Resale.............................................. 11,463 11,851
Corporate........................................... (4,545) (5,053)10,285 $ 21,914 $ 22,765
Resale.............................. 12,359 10,455 23,822 22,309
Corporate........................... (7,474) (5,115) (12,017) (10,171)
-------- -------- Total...............................................-------- --------
Total............................... $ 18,91414,805 $ 19,27915,625 $ 33,719 $ 34,903
======== ======== ======== ========
Restructuring charges:
Commercial..........................................Commercial.......................... $ 1031,018 $ 911
Resale..............................................410 $ 1,121 $ 1,320
Resale.............................. -- (140)(54) -- (195)
-------- -------- Total...............................................-------- --------
Total............................... $ 1031,018 $ 771356 $ 1,121 $ 1,125
======== ======== ======== ========
Net sales by product line:
Commercial printing................................. $198,647 $196,830
Envelopes........................................... 173,764 180,190printing................. $186,873 $185,638 $385,073 $382,468
Envelopes........................... 172,077 171,845 346,180 352,035
Business forms and labels........................... 51,331 50,300labels........... 50,446 50,343 101,885 100,643
-------- -------- Total............................................... $423,742 $427,320-------- --------
Total............................... $409,396 $407,826 $833,138 $835,146
======== ======== ======== ========
911. SUBSEQUENT EVENT
On July 6, 2004 the Company purchased the stock of Valco Graphics Inc.,
a commercial printing company in Seattle, Washington with annual sales of
approximately $18 million, for $9.5 million in cash. The Company plans to
combine its existing commercial printing operation in Seattle with Valco
Graphics and operate the combined entity as Cenveo, Seattle.
10
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Cenveo Corporation (formerly known as Mail-Well I CorporationCorporation)
("Issuer" or "MWI"), the Company's wholly-owned subsidiary, and the only direct
subsidiary of the Company, has issued $350 million aggregate principal
amount of 9 5/8% Senior Notes ("Senior Notes") due in 2012 and $320 million
aggregate principal amount of 7 7/8% Senior Subordinated Notes ("Senior
Subordinated Notes") due in 2013. The Senior Notes and Senior Subordinated
Notes are guaranteed by the Guarantor Subsidiaries and the Parent
Guarantor. The guarantees are joint and several, full, complete and
unconditional. There are no material restrictions on the ability of the
Guarantor Subsidiaries to transfer funds to MWIthe issuer in the form of cash
dividends, loans or advances, other than ordinary legal restrictions under
corporate law, fraudulent transfer and bankruptcy laws.
The following condensed consolidating financial information illustrates
the composition of the Parent Guarantor, Issuer, and Guarantor
Subsidiaries. The Issuer and the Guarantor Subsidiaries comprise all of the
direct and indirect subsidiaries of the Parent Guarantor. Management has
determined that separate complete financial statements would not provide
additional material information that would be useful in assessing the
financial composition of the Guarantor Subsidiaries.
Investments in subsidiaries are accounted for under the equity method,
wherein the investor company's share of earnings and income taxes
applicable to the assumed distribution of such earnings are included in net
income. In addition, investments increase in the amount of permanent
contributions to subsidiaries and decrease in the amount of distributions
from subsidiaries. The elimination entries remove the equity method
investment in subsidiaries and the equity in earnings of subsidiaries,
intercompany payables and receivables and other transactions between
subsidiaries.
1011
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)
March 31,June 30, 2004
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- ---------- ------------ -------------------- ------------
Current assets:
Cash and cash equivalents..........equivalents......... $ -- $ -- $ 259165 $ -- $ 259165
Accounts receivable, net...........net.......... -- 47,318 176,71654,196 164,392 -- 224,034218,588
Inventories, net...................net.................. -- 40,180 59,45946,767 64,511 -- 99,639111,278
Note receivable from
subsidiaries......................subsidiaries..................... -- 603,100 -- (603,100) --
Other current assets...............assets.............. -- 30,268 19,96826,266 18,083 -- 50,23644,349
------- ---------- -------- -------------------- ----------
Total current assets.............assets............ -- 720,866 256,402730,329 247,151 (603,100) 374,168374,380
Investment in subsidiaries........... 49,658 132,384subsidiaries.......... 44,625 407,949 -- (182,042)(452,574) --
Property, plant and equipment,
net...net................................ -- 90,676 289,65289,278 285,141 -- 380,328374,419
Goodwill and other intangible
assets, net.................................net........................ -- 67,253 249,91367,289 247,436 -- 317,166314,725
Deferred tax asset (liability)...... -- 12,402 (9,777) -- 2,625
Other assets, net....................net................... -- 33,736 6,57533,635 4,244 -- 40,31137,879
------- ---------- -------- -------------------- ----------
Total assets......................... $49,658 $1,044,915 $802,542 $(785,142) $1,111,973assets........................ $44,625 $1,340,882 $774,195 $(1,055,674) $1,104,028
======= ========== ======== ==================== ==========
Current liabilities:
Accounts payable...................payable.................. $ -- $ 30,835 $120,35342,266 $104,241 $ -- $ 151,188146,507
Other current liabilities..........liabilities......... -- 47,232 58,80851,159 62,641 -- 106,040113,800
Intercompany payable
(receivable)........................................... -- 137,359 (137,359)417,637 (417,637) -- --
Note payable to Issuer.............Issuer............ -- -- 603,100 (603,100) --
Current maturities of long-term
debt..............................debt............................. -- 1,780 8081,784 800 -- 2,5882,584
------- ---------- -------- -------------------- ----------
Total current liabilities........liabilities....... -- 217,206 645,710512,846 353,145 (603,100) 259,816262,891
Long-term debt, less current
maturities..........................maturities......................... -- 770,291 4,458766,037 4,335 -- 774,749
Deferred income taxes................770,372
Other liabilities................... -- (8,671) 10,17817,374 8,766 -- 1,507
Other liabilities.................... -- 16,431 9,812 -- 26,24326,140
------- ---------- -------- -------------------- ----------
Total liabilities................liabilities............... -- 995,257 670,1581,296,257 366,246 (603,100) 1,062,3151,059,403
Shareholders' equity................. 49,658 49,658 132,384 (182,042) 49,658equity................ 44,625 44,625 407,949 (452,574) 44,625
------- ---------- -------- -------------------- ----------
Total liabilities and shareholders'
equity.............................. $49,658 $1,044,915 $802,542 $(785,142) $1,111,973equity............................. $44,625 $1,340,882 $774,195 $(1,055,674) $1,104,028
======= ========== ======== ==================== ==========
1112
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF FINANCIAL POSITION
December 31, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- -------- ------------ --------- ------------
Current assets:
Cash and cash equivalents............ $ -- $ -- $ 307 $ -- $ 307
Accounts receivable, net............. -- 50,125 173,416 -- 223,541
Inventories, net..................... -- 35,509 55,893 -- 91,402
Note receivable from subsidiaries.... -- 603,100 -- (603,100) --
Other current assets................. -- 32,109 16,026 -- 48,135
------- -------- -------- --------- ----------
Total current assets............... -- 720,843 245,642 (603,100) 363,385
Investment in subsidiaries............. 68,019 12,364 -- (80,383) --
Property, plant and equipment, net..... -- 90,956 297,284 -- 388,240
Goodwill and other intangible assets,
net................................... -- 67,474 251,605 -- 319,079
Other assets, net...................... -- 29,322 7,367 -- 36,689
------- -------- -------- --------- ----------
Total assets........................... $68,019 $920,959 $801,898 $(683,483) $1,107,393
======= ======== ======== ========= ==========
Current liabilities:
Accounts payable..................... $ -- $ 29,092 $111,376 $ -- $ 140,468
Other current liabilities............ -- 58,868 58,701 -- 117,569
Intercompany payable (receivable).... -- 9,059 (9,059) -- --
Note payable to Issuer............... -- -- 603,100 (603,100) --
Current maturities of long-term
debt................................ -- 1,776 799 -- 2,575
------- -------- -------- --------- ----------
Total current liabilities.......... -- 98,795 764,917 (603,100) 260,612
Long-term debt, less current
maturities............................ -- 741,589 4,797 -- 746,386
Deferred income taxes.................. -- (4,040) 10,757 -- 6,717
Other long-term liabilities............ -- 16,596 9,063 -- 25,659
------- -------- -------- --------- ----------
Total liabilities.................. -- 852,940 789,534 (603,100) 1,039,374
Shareholders' equity................... 68,019 68,019 12,364 (80,383) 68,019
------- -------- -------- --------- ----------
Total liabilities and shareholders'
equity................................ $68,019 $920,959 $801,898 $(683,483) $1,107,393
======= ======== ======== ========= ==========
1213
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
QuarterThree Months Ended March 31,June 30, 2004
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- -------- ------------ ------------- ------------
Net sales................................sales................................. $ -- $100,591 $323,151$100,793 $308,603 $ -- $423,742$409,396
Cost of sales............................sales............................. -- 81,144 254,17882,734 243,028 -- 335,322325,762
------- -------- -------- -------- ------------- --------
Gross profit.............................profit.............................. -- 19,447 68,97318,059 65,575 -- 88,42083,634
Operating expenses:
Selling, general and administrative....administrative..... -- 16,063 53,34017,269 50,542 -- 69,40367,811
Restructuring charges..................charges................... -- -- 1031,018 -- 1031,018
------- -------- -------- -------- ------------- --------
Operating income.........................income.......................... -- 3,384 15,530790 14,015 -- 18,91414,805
Other expense:
Interest expense.......................expense........................ -- 18,333 6617,461 52 -- 18,39917,513
Intercompany interest expense
(income)............................................................. -- (13,562) 13,562(12,713) 12,713 -- --
Loss on early extinguishment of debt...Other................................... -- 17,748638 (111) -- -- 17,748
Other.................................. -- 318 123 -- 441527
------- -------- -------- -------- ------------- --------
Income (loss) from continuing operations,
before income taxes and undistributed
earnings of subsidiaries................subsidiaries................. -- (19,453) 1,779(4,596) 1,361 -- (17,674)(3,235)
Income tax benefit.......................expense (benefit).............. -- 112 1,027(239) 300 -- 1,13961
------- -------- -------- -------- ------------- --------
Income (loss) from continuing operations,
before undistributed earnings of
subsidiaries............................subsidiaries............................. -- (19,341) 2,806(4,357) 1,061 -- (16,535)(3,296)
Gain on disposal of discontinued
operations, net of taxes of $770......... -- (1,230) -- -- (1,230)
Equity in undistributed earnings of
subsidiaries............................ (16,535) 2,806subsidiaries............................. (2,066) 1,061 -- 13,7291,005 --
------- -------- -------- -------- ------------- --------
Net income (loss)........................ $(16,535) $(16,535)......................... $(2,066) $ 2,806 $13,729 $(16,535)(2,066) $ 1,061 $1,005 $ (2,066)
======= ======== ======== ======== ============= ========
1314
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
QuarterThree Months Ended March 31,June 30, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- -------- ------------ -------- ------------
Net sales............................... $ -- $107,643 $319,677$101,904 $305,922 $ -- $427,320$407,826
Cost of sales........................... -- 88,797 254,60385,035 243,670 -- 343,400328,705
------- -------- -------- -------- --------
Gross profit............................ -- 16,869 62,252 -- 79,121
Other operating expenses................ -- 18,054 45,086 -- 63,140
Restructuring and other charges......... -- -- 356 -- 356
------- -------- -------- -------- --------
Operating income (loss)................. -- (1,185) 16,810 -- 15,625
Other expense (income):
Interest expense...................... -- 18,172 13,650 (13,703) 18,119
Other expense (income)................ -- (13,724) 376 13,703 355
------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and equity in
undistributed earnings of
subsidiaries........................... -- (5,633) 2,784 -- (2,849)
Income tax expense (benefit)............ -- (2,206) 1,038 -- (1,168)
------- -------- -------- -------- --------
Income (loss) from continuing operations
before equity in undistributed earnings
of subsidiaries........................ -- (3,427) 1,746 -- (1,681)
Equity in undistributed earnings of
subsidiaries........................... (2,262) 1,746 -- 516 --
------- -------- -------- -------- --------
Income (loss) from continuing
operations............................. (2,262) (1,681) 1,746 516 (1,681)
Loss on disposal........................ -- 581 -- -- 581
------- -------- -------- -------- --------
Net income (loss)....................... $(2,262) $ (2,262) $ 1,746 $ 516 $ (2,262)
======= ======== ======== ======== ========
15
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended June 30, 2004
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- -------- ------------ -------- ------------
Net sales............................... $ -- $201,383 $631,755 $ -- $833,138
Cost of sales........................... -- 163,878 497,206 -- 661,084
-------- -------- -------- -------- --------
Gross profit............................ -- 37,505 134,549 -- 172,054
Other operating expenses................ -- 33,700 103,514 -- 137,214
Restructuring and other charges......... -- -- 1,121 -- 1,121
-------- -------- -------- -------- --------
Operating income........................ -- 3,805 29,914 -- 33,719
Other expense (income):
Interest expense...................... -- 35,794 118 -- 35,912
Intercompany interest expense
(income)............................. -- (26,275) 26,275 -- --
Loss on early extinguishment of
debt................................. -- 17,748 -- -- 17,748
Other expense (income)................ -- 956 12 -- 968
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and equity in
undistributed earnings of
subsidiaries........................... -- (24,418) 3,509 -- (20,909)
Income tax expense (benefit)........... -- (1,270) 192 -- (1,078)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before equity in undistributed earnings
of subsidiaries........................ -- (23,148) 3,317 -- (19,831)
Equity in undistributed earnings of
subsidiaries........................... (18,601) 3,317 -- 15,284 --
-------- -------- -------- -------- --------
Income (loss) from continuing
operations............................. (18,601) (19,831) 3,317 15,284 (19,831)
Gain on disposal of discontinued
operations, net of taxes of $770....... -- (1,230) -- -- (1,230)
-------- -------- -------- -------- --------
Net income (loss)....................... $(18,601) $(18,601) $ 3,317 $ 15,284 $(18,601)
======== ======== ======== ======== ========
16
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
Six Months Ended June 30, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES ELIM. CONSOLIDATED
--------- -------- ------------ -------- ------------
Net sales............................... $ -- $209,547 $625,599 $ -- $835,146
Cost of sales........................... -- 175,019 497,079 -- 672,098
------ -------- -------- -------- --------
Gross profit............................ -- 18,846 65,07434,528 128,520 -- 83,920
Operating expenses:
Selling, general163,048
Other operating expenses................ -- 33,884 93,136 -- 127,020
Restructuring and administrative... -- 15,713 48,157 -- 63,870
Restructuring charges.................other charges......... -- -- 7711,125 -- 7711,125
------ -------- -------- -------- --------
Operating income (loss)................. -- 3,133 16,146644 34,259 -- 19,27934,903
Other expense (income):
Interest expense...................... -- 17,852 14,016 (13,654) 18,21436,259 27,430 (27,356) 36,333
Other expense (income)................ -- (13,657) 135 13,654 132(27,381) 512 27,356 487
------ -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes and equity in
undistributed earnings of
subsidiaries........................... -- (1,062) 1,995(8,234) 6,317 -- 933(1,917)
Income tax benefit (expense)expense (benefit)............ -- 457 (858)(3,294) 2,527 -- (401)(767)
------ -------- -------- -------- --------
Income (loss) from continuing operations
before equity in undistributed earnings
of subsidiaries........................ -- (605) 1,137(4,940) 3,790 -- 532(1,150)
Equity in undistributed earnings of
subsidiaries........................... 2,710 1,248447 3,790 -- (3,958)(4,237) --
------ -------- -------- -------- --------
Income (loss) from continuing
operations............................. 2,710 643 1,137 (3,958) 532447 (1,150) 3,790 (4,237) (1,150)
Gain on disposal........................ -- 2,500(1,919) -- -- 2,500(1,919)
Cumulative effect of a change in
accounting principle................... -- 322 -- (322) -- (322)322
------ -------- -------- -------- --------
Net income (loss)....................... $2,710 $ 3,143447 $ 815447 $ (3,958)3,790 $ 2,710(4,237) $ 447
====== ======== ======== ======== ========
1417
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
QuarterSix Months Ended March 31,June 30, 2004
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED
--------- ----------- ------------ ------------
Cash flows provided by (used in) from
operating activities..........................activities......................... $ -- $ (36,876)(12,064) $ 22,3987,341 $ (14,478)(4,723)
Cash flows from investing activities:
Capital expenditures............... (2,950) (2,697) (5,647)expenditures........................ -- (3,549) (8,911) (12,460)
Intercompany advances.............. (7) 19,736 (19,729)advances....................... (46) 92 (46) --
Proceeds from salesales of property, plant &
equipment.................equipment.................................. -- -- 229 229
-------346 346
Proceeds on divestitures, net............... -- -- 2,000 2,000
--------- ----------- -------- -----------
Net cash used in investing activities........................ (7) 16,786 (22,197) (5,418)activities....... (46) (3,457) (6,611) (10,114)
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......debt.... -- 1,174,0371,677,071 -- 1,174,0371,677,071
Repayments of long-term debt.......debt................ -- (1,145,343) (318) (1,145,661)(1,652,614) (460) (1,653,074)
Proceeds from issuance of common stock............................. 7stock...... 46 -- -- 746
Capitalized loan fees..............fees....................... -- (8,291)(8,936) -- (8,291)
-------(8,936)
--------- ----------- -------- -----------
Net cash used inprovided by (used in) financing
activities........................ 7 20,403 (318) 20,092activities................................. 46 15,521 (460) 15,107
Effect of exchange rate changes on cash and
cash equivalents...........equivalents............................. -- (313) 69 (244)
--------- (412) (412)
--------- ----------- -------- -----------
Net decreasechange in cash and cash equivalents.........................equivalents....... -- -- (48) (48)(142) (142)
Cash and cash equivalents at beginning of
year...................year......................................... -- -- 307 307
---------------- ----------- -------- -----------
Cash and cash equivalents at end of quarter.............................period.... $ -- $ -- $ 259165 $ 259
=======165
========= =========== ======== ===========
1518
MAIL-WELL,CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
QuarterSix Months Ended March 31,June 30, 2003
(in thousands)
COMBINED
PARENT GUARANTOR
GUARANTOR ISSUER SUBSIDIARIES CONSOLIDATED
--------- --------- ------------ ------------
Cash flows from (used in) operating
activities............activities..................................... $ -- $ 1,760 $(14,827)(17,035) $ (13,067)37,194 $ 20,159
Cash flows from investing activities:
Capital expenditures.......................... -- (809) (5,607) (6,416)(976) (12,034) (13,010)
Proceeds from divestitures, net............... -- 3,864 -- 3,864
Intercompany advances......................... -- (20,902) 20,902(16) 25,257 (25,241) --
Proceeds from the sale of assets.............. -- -- 515 515627 627
--------- --------- -------- ---------
Net cash provided by (used in) investing
activities................................... -- (17,847) 15,810 (2,037)(16) 28,145 (36,648) (8,519)
Cash flows from financing activities:
Proceeds from the issuance of common stock.... 16 -- -- 16
Proceeds from long-term debt.................. -- 485,122947,205 -- 485,122947,205
Repayments of long-term debt.................. -- (471,147) (1,041) (472,188)(960,176) (771) (960,947)
Capitalized loan fees......................... -- (316)(437) -- (316)(437)
--------- --------- -------- ---------
Net cash provided by (used in) financing
activities................................... -- 13,659 (1,041) 12,61816 (13,408) (771) (14,163)
Effect of exchange rate changes on cash......... -- -- 180 180619 619
--------- --------- -------- ---------
Net changeincrease (decrease) in cash and cash
equivalents.........equivalents.................................... -- (2,428) 122 (2,306)
Cash and cash equivalents(2,298) 394 (1,904)
Balance at beginning of year..year.................... -- 1,957 693 2,650
--------- --------- -------- ---------
Cash and cash equivalentsBalance at end of quarter.....period........................ $ -- $ (471)(341) $ 8151,087 $ 344746
========= ========= ======== =========
1619
CENVEO, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS OVERVIEW
We are one of North America's leading providers of visual
communications. We produce a variety of products and provide services that
help our customers deliver customized messages more effectively. In keeping
with our strategy to unite all of our operations under one identity, our
shareholders approved the change of the Company's name from Mail-Well, Inc.
to Cenveo, Inc. on April 29, 2004. In October 2003, we reorganized Mail-WellCenveo
into two business segments. This reorganization aligned our structure with
our principal strategic goals: to operate as one company; to provide our
customers with one point of entry into Mail-Well;Cenveo; and to go to marketprovide our customers
with alla full spectrum of our products and services.services delivered with speed,
reliability and efficiency.
COMMERCIAL
Our commercial segment specializes in printing annual reports, car
brochures, brand marketing collateral, financial communications, general
commercial printing and the manufacturing and printing of customized
envelopes for billing and remittance and direct mail advertising. We also
offer our customers services such as design, fulfillment, e-commerce,
inventory management and other enterprise solutions for companies seeking
strategic partners for their branding and other communications priorities.
These products and services are sold directly to national and local
customers. Our commercial segment consists of 36 printing plants, 29
envelope plants and five distribution and fulfillment centers.
MARKET AND OTHER FACTORS. Approximately 50% of our commercial printing
sales and approximately 40% of our custom envelope sales are related to
advertising and direct mail promotions. Beginning in 2001, many of our
customers significantly reduced promotional spending in response to the
economic slowdown. Advertising and promotional spending historically hashave
not improved as quickly as the overall economy after a recession.
Additionally, we expect growth in printed advertising and promotional
spending to be slower than it was prior to the recession. As a result,While the volumes
of certain of our products are beginning to increase and our margins are
improving, there is overcapacity in our industry and significant
competitive pricing pressures. We do not expect strong internal growth or increases in margins
until capacity is reduced or the markets served by our commercial segment,
particularly advertising and direct mail, begin tofully recover from the recession.
AREAS OF FOCUS. Because of the changes that have occurred in our
markets we have two principal areas of focus:
* It is important that we grow our share of the market. We have made a
substantial investment in our sales and marketing organization to
differentiate ourselves from our competitors and enable us to offer
and deliver to our customers a full spectrum of our products and
services with speed, reliability and efficiency.
* We must continue to manage our capacity and operating leverage. In
2001, we began a restructuring program to consolidate many of our
manufacturing facilities to reduce excess capacity and improve our
competitive position. We have closed eleven of our envelope
facilities and four printing operations to improve the utilization of
our capacity. In the firstsecond quarter of 2004 we announced the closure
ofclosed another
envelope facility.
RESALE
Our resale segment produces business forms and labels, custom and stock
envelopes and specialty packaging and mailers. These products are generally
sold through professional print distributors, business forms suppliers,
office-products retail chains and the Internet. The resale segment operates
20 manufacturing facilities.
20
CENVEO, INC. AND SUBSIDIARIES
MARKET AND OTHER FACTORS. Demand for business forms has been declining
for several years as businesses have acquired laser-printing capabilities.
The resale market for office products has become extremely price
competitive. Mass merchandisers, wholesalers and paper merchants are
consolidating suppliers. Product offerings, competitive prices and service
are keys to retaining business.
17
AREAS OF FOCUS. In response to industry and market challenges, we are
focusing on the following:
* We are defending our share of the business forms market and our sales
into the office products retail channel. We believe we have the
national manufacturing capability and the cost structure to be
successful in this effort.
* We must grow our sales of business labels and specialty business
documents. The markets for these products are growing and we have the
production capability and products to benefit from this market
growth.
* We must match our manufacturing capacity of business forms to the
demands of our customers. Since 2001, we have closed two of our
business forms plants.
CORPORATE
In addition to the business improvement actions and areas of focus for
each of our business segments, we have several important corporate-wide
initiatives.
* Our company was formed through a strategic roll-up of many
acquisitions. The companies we acquired had different cultures,
operating procedures and information systems. We have taken and will
continue to take actions to integrate our operations into one
company, build our own unique culture and standardize procedures and
systems.
In keeping with our strategy to unite the organization under
one identity, on April 29, 2004, our shareholders approved a proposal
to amend the Articles of Incorporation of Mail-Well, Inc. to change
its corporate name to "Cenveo, Inc." The Company intends to file the
amendment with the Colorado Secretary of State to be effective May
17, 2004. On such date, our common stock is expected to begin trading
on the New York Stock Exchange under its new symbol: "CVO."
* We have refinanced our debt over the last several years. Currently,
we have no significant maturities on any of our long-term debt until
2008. Our focus is on generating sufficient internal cash flow to
fund investments in capital equipment and acquisitions and reductions
in our outstanding debt.
* In 2003, we launched a major initiative we refer to as
"Mobilization." Mobilization is a comprehensive program designed to
actively involve all of our employees in improving service, quality,
efficiency and innovation. We believe this initiative has and will
continue to improve teamwork, communication and accountability
throughout our business and thus improve operations, safety and
customer service, and reduce costs.
* UncoatedThe cost of coated and uncoated paper priceshas increased 10% on April 1, 2004. This increasein the first six
months of 2004 and additional price increases have been announced.
These increases in the cost of manufacturing our envelope products will
negatively impact the profit margins of both segmentsresale and commercial to
the extent we are unable to increase our prices on these products. It
will be important for us to managemitigate the impact of this price
increase.
18CONSOLIDATED RESULTS
The summary financial data set forth in the tables that follow present
reported amounts as well as comparable financial data for our commercial
and resale operating segments. Division net sales are the sales of our
operating segments and exclude sales of our digital graphics operations
sold in March 2003. Division operating income is the operating income of
our segments before considering restructuring expenses and the operating
results of the digital graphics operations and excludes
21
CONSOLIDATED RESULTSCENVEO, INC. AND SUBSIDIARIES
unallocated corporate expenses. We believe this presentation provides
information useful to understanding of the performance of our two operating
segments.
THREE MONTHS ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2004 2003 2004 2003
-------- -------- (DOLLARS IN THOUSANDS)-------- --------
Division net sales.......................................... $423,742 $424,446sales.......................... $409,396 $407,826 $833,138 $832,273
Divested operations....................................operations..................... -- -- -- 2,873
-------- -------- -------- --------
Net sales................................................... $423,742 $427,320
======== ========sales................................... 409,396 407,826 833,138 835,146
Division operating income................................... $ 23,562 $ 24,935income................... 23,298 21,096 46,857 46,031
Unallocated corporate expenses.......................... (4,545) (5,053)expense........... (7,475) (5,115) (12,017) (10,171)
Restructuring expenses.................................. (103) (771)expense................... (1,018) (356) (1,121) (1,125)
Divested operations.....................................operations..................... -- -- -- 168
-------- -------- -------- --------
Operating income............................................ 18,914 19,279income............................ 14,805 15,625 33,719 34,903
Interest expense........................................ (18,399) (18,214)expense........................ 17,513 18,119 35,912 36,333
Loss from theon early extinguishment of debt.............. (17,748)debt.... -- Other................................................... (441) (132)-- 17,748 --
Other................................... 527 355 968 487
-------- -------- Income-------- --------
Loss from continuing operations before
income taxes.................................. (17,674) 933taxes.............................. (3,235) (2,849) (20,909) (1,917)
Income tax benefit (expense)............................ 1,139 (401)............ (61) 1,168 1,078 767
-------- -------- -------- --------
Loss from continuing operations............. (3,296) (1,681) (19,831) (1,150)
Gain (loss) on disposal of discontinued
operations............. -- 2,500operations............................ 1,230 (581) 1,230 1,919
Change in accounting principle..........................principle.......... -- -- -- (322)
-------- -------- -------- --------
Net income (loss)........................................... $(16,535)........................... $ 2,710(2,066) $ (2,262) $(18,601) $ 447
======== ======== ======== ========
Earnings (loss) per share...................................share................... $ (0.35)(0.04) $ 0.06(0.05) $ (0.39) $ 0.01
======== ======== ======== ========
NET SALES
Net sales declined $3.6and division net sales increased $1.6 million in the firstsecond
quarter of 2004 compared to net sales for the firstsecond quarter of 2003. Net sales in 2003 included sales of $2.9
million from the digital graphics operations that were divested in March
2003.
Division net sales were down only slightly. Sales
of our commercial segment increased primarily due to higher$1.0 million, and sales of annual reports and other
high impact commercial printing products. Sales in our resale
segment increased $0.6 million.
For the six months ended June 30, 2004, net sales declined $2.0 million
compared to net sales for the comparable period of 2003. Sales in the quarter primarily due to lower demand for office productsfirst
six months of 2003 included $2.9 million of the digital graphics operations
divested in the retailfirst quarter of 2003. Division net sales for the six
months ended June 30, 2004 increased $0.9 million. Sales of our commercial
segment increased $3.6 million while sales of the market.our resale segment decreased
$2.8 million.
OPERATING INCOME
Operating income declined $0.4$0.8 million in the firstsecond quarter of 2004
from $19.3and $1.2 million for the six months ended June 30, 2004 compared to
operating income earned in the first quartercomparable periods of 2003.
DIVISION OPERATING INCOME. Division operating income was $1.4increased $2.2
million
lower in the firstsecond quarter of 2004 thancompared to division operating income
earned in the firstsecond quarter of 20032003. Division operating income of our
commercial segment improved $0.2 million. Division operating income of our
resale segment improved $2.0 million.
For the six months ended June 30, 2004, division operating income
increased $0.8 million. The increase in division operating income was due
to our resale segment which improved its operating
22
CENVEO, INC. AND SUBSIDIARIES
income by $1.7 million. The division operating income of the commercial
segment declined $0.9 million.
UNALLOCATED CORPORATE EXPENSES. Unallocated corporate expenses include
the costs of our corporate headquarters. The increase in corporate expenses
in the second quarter of 2004 and for the six months ended June 30, 2004 is
primarily due to investments madean increase in sales and marketing inthe cost of workers' compensation claims.
We did not allocate these expenses to our commercial
segment, higher employeesegments because the increased
costs related expenses and higher amortization expense.to the development of claims incurred prior to 2004.
RESTRUCTURING EXPENSES. We continue to evaluate our operations for
opportunities to optimize capacity and reduce costs. In February 2004, we
announced the closure of our envelope plant in Bensalem, Pennsylvania and
its integration into our Philadelphia printing facility. The expenses
incurred in connection with this closure, which were primarily feesemployee
separation and related to
human resource issuesexpenses and 19
expenses incurred incidental tofor equipment moves.moves and
preparing the building in Bensalem for sale, totaled $1.0 million in the
second quarter of 2004 and $1.1 million for the six months ended June 30,
2004.
The total cost of the closure is expected to be approximately $2.2
million consisting of the following (in thousands):
Employee separation and related expenses................ $ 868875
Equipment write-downs, net.............................. 500
Equipment moving expenses............................... 225
Building clean-up and other expenses.................... 570
------
Total............................................... $2,163$2,170
======
We anticipate incurring mostthe remainder of these expenses prior to June 30,the
end of 2004.
UNALLOCATED CORPORATE EXPENSES. Corporate unallocated expenses include
the costs of our corporate headquarters. The decrease in corporate expenses
in the first quarter of 2004 was primarily due to adjustments to vendor
rebate accruals which were not allocated to the segments.
DIVESTED OPERATIONS. Operating income in 2003 included operating income
of $0.2 million from the digital graphics operations divested in March
2003.
INTEREST EXPENSE
Interest expense increased slightlydecreased by $0.6 million in the firstsecond quarter of
2004 compared to the firstsecond quarter of 2003. Interest expense incurred
during the firstsecond quarter of 2004 reflectsreflected our average outstanding debt
during the quarter of $817.7$807.1 million and a weighted average interest rate
of 8.38%8.06% compared to the average outstanding debt of $813.2$801.9 million and a
weighted average interest rate of 8.34%8.36% in the second quarter of 2003.
For the six months ended June 30, 2004, interest expense was $0.4
million lower than the comparable period of 2003. Interest expense incurred
during this period reflected our average outstanding debt of $812.4 million
and a weighted average interest rate of 8.19% compared to the average
outstanding debt of $807.5 million and a weighted average interest rate of
8.35% during the first quartersix months of 2003.
Our average outstanding debt was higherand weighted average interest rate in the first quarter of 2004
due toreflect the issuance of the 7 7/8% senior subordinated notes in January,
and the periodproceeds of time that
a portion of thewhich were used to redeem our 8 3/4% senior subordinated
notes remainedand lower outstanding prior to their redemption.debt issued under our credit facility.
LOSS FROM THE EARLY EXTINGUISHMENT OF DEBT
In January 2004, we sold $320 million of 7 7/8% senior subordinated
notes due 2013. The proceeds from the sale of these notes were used to
redeem our 8 3/4% senior subordinated notes due 2008. The premium paid to
redeem the 8 3/4% notes and the unamortized debt issuance costs on the
8 3/4% notes, which were written off, totaled $17.7 million.
23
CENVEO, INC. AND SUBSIDIARIES
TAX BENEFIT
The income tax benefit recorded on the loss before income taxes was
based on the effective tax rate of 5.2% for the first quartersix months ended June 30,
2004. Our effective tax rate was negatively impacted by the establishment
of 2004 was 6.4% which was
primarilyadditional valuation allowances on certain deferred tax assets.
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, ("SFAS 109") requires us to evaluate the resultrealizability of an additionalour
deferred tax valuation allowance of $6.8
million recorded as of March 31, 2004. At December 31, 2003, we recordedassets on a quarterly basis. SFAS 109 requires us to provide a
valuation allowance when it is more likely than not that all or a portion
of $6.5 million fordeferred tax assets will not be realized. In circumstances where there
is sufficient negative evidence with respect to the realizability of
deferred tax assets, establishment of a valuation allowance must be
considered. Under provisions of SFAS 109, the substantial losses we
incurred over the most recent three-year period represent sufficient
negative evidence. Accordingly, we are providing an additional valuation
allowance to cover the estimated impairment of the deferred tax asset
arising from U.S. related operating losses that are expected to be
generated in 2004.
In the second quarter of 2004, we determined that $6.4 million of our
tax contingency reserves established in prior years were no longer
necessary. Also in the second quarter of 2004, we determined that certain
loss carryforwards. We hadassumptions in our tax planning strategies available that we
believed could enable uswere no longer sufficient to
realizeutilize all of our capital loss carryforwards and added $6.0 million to our
valuation allowance.
We believe our remaining net deferred tax assets.
Since we incurred additional net operating losses in the first quarter of
2004, it was necessary for us to record a valuation allowance to reduce the
recorded estimated tax benefit from this additional net operating loss.
This valuation allowance covers the estimated portion of the tax benefit
that would notassets will be utilized byrealized through
the reversal of our existing temporary differences orand the execution of
available tax planning strategies. NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE--DILUTED
Net loss and loss per share for the first quarter of 2004 reflect the
loss from the early extinguishment of debt and theAdditional valuation allowances may be
required if we are unable to execute our tax planning strategies or
generate future taxable income. The valuation allowance that has been
established will be maintained until there is sufficient positive evidence
to conclude that it is more likely than not that our deferred tax assets
will be realized. When sufficient positive evidence occurs, our income tax
expense will be reduced to the extent we decrease the amount of our
valuation allowance. The establishment or reversal of valuation allowances
could have a significant negative or positive impact on future earnings.
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS
In September 2000, we sold the extrusion coating and laminating
business segment of American Business Products, Inc., a company we acquired
in February 2000. The consideration received for this business included an
unsecured note which was fully reserved at the time of the sale. This note
was redeemed by the issuer in June 2004 for $2.0 million. The proceeds, net
of tax, have been recorded in the first quarter of 2004; and higher selling, general and
administrative expenses and higher amortization expense in the first
quarter of 2004 than in the first quarter of 2003. Net income and earnings
per share in the first quarter of 2003 includedas a gain on disposal of discontinued
operations.
The loss on the disposal of discontinued operations which wasrecorded in the
resultsecond quarter of an adjustment2003 and the gain recorded for the six months ended June
30, 2003 were the results of adjustments made to the tax impact of the sale
of the prime label business in 2002,2002.
NET LOSS AND LOSS PER SHARE--DILUTED
The net loss and loss per share for the second quarter of 2004 reflect
the improved performance of our operating segments and the cumulative
effectgain on disposal
of a change in accounting principle resulting fromdiscontinued operations. These gains were offset by higher workers'
compensation expense, higher amortization expense and higher restructuring
expense. Operating income was not sufficient to cover interest expense.
For the adoptionsix month ended June 30, 2004, our net loss and net loss per
share reflect operating income that was not sufficient to cover interest
expense and the $17.7 million loss incurred on the early extinguishment of
Financial Accounting Standards Board Interpretation No. 46.
20debt.
24
CENVEO, INC. AND SUBSIDIARIES
BUSINESS SEGMENTS
COMMERCIAL
THREE MONTHS ENDED MARCH 31,SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2004 2003 2004 2003
-------- -------- (DOLLARS IN THOUSANDS)-------- --------
Division net sales.......................................... $323,849 $321,190sales.......................... $307,583 $306,608 $631,432 $627,797
Divested operations....................................operations..................... -- -- -- 2,873
-------- -------- Total net sales............................................. $323,849 $324,063
======== ========-------- --------
Net sales................................... 307,583 306,608 631,432 630,670
Division operating income................................... $ 12,099 $ 13,224income................... 10,938 10,695 23,035 23,917
Restructuring expenses.................................. (103) (911)expense................... (1,018) (410) (1,121) (1,320)
Divested operations.....................................operations..................... -- -- -- 168
-------- -------- -------- --------
Operating income............................................ $ 11,996 $ 12,481
======== ========income............................ 9,920 10,285 21,914 22,765
Operating margin............................................ 3.7% 3.9%income margin..................... 3.2% 3.4% 3.5% 3.6%
Net sales of theour commercial segment declined slightly infor the firstsecond quarter of 2004
increased $1.0 million to $307.6 million compared to net sales in the
firstsecond quarter of 2003. Sales of our commercial printing and envelope
products in the second quarter of 2004 were comparable to the second
quarter of 2003. The change in net
sales is explained as follows:
* Sales of commercial printing products were $4.7 million, or 2.3%,
higher driven by higher sales of high impact printing to our national
customers. Sales of annual reportsincrease in the firstsecond quarter of 2004 were
stronger than in the first quarter of 2003.
* Envelope sales of our domestic operations were $5.2 million, or 5.7%,
lowerwas
primarily due to a decline in units sold and lower average selling
prices.
* Thethe favorable impact of the strength of the Canadian
dollar in the first quarter of 2004
compared to the first quarter of 2003 had a $4.4 million favorable
impact on the envelope sales of our Canadian operations.
In local
currency, sales were 10.2% lower due to lower volume and lower
average selling prices.
* Net sales in 2003 included sales of $2.9 million of the digital
graphics operations that were sold in March 2003.
Operating income offor the commercial segment decreased $0.5 million in
the firstsecond quarter of 2004 compareddecreased slightly to
$9.9 million from the first$10.3 million earned in the second quarter of 2003.
Gross
profit improved 6.8% asThis decrease was due to the higher restructuring expenses incurred in the
second quarter of 2004. Division operating income increased slightly to
$10.9 million from the $10.7 million earned in the prior year. This
improvement was due to a result of an overall140 basis point, or 7.8%, improvement in margins and
lower fixed manufacturing expenses. In addition, restructuring expenses
declined $0.8 million. These gains, however, were offset by an increase in
spending forgross
profit margin which more than covered higher sales and marketing higher employee related expenses
and higher amortization expense. Amortization expense increasedwas $1.0 million
higher in the firstsecond quarter of 2004 due to the amortization of an
intangible asset recorded in connection with the payment of contingent
purchase price on an acquisition consummatedcompleted in 2002.
Net sales of our commercial segment for the six months ended June 30,
2004 were slightly higher than net sales in the comparable period of 2003.
Net sales in 2003 included sales of $2.9 million of the digital graphics
operations that were sold in March 2003. Division net sales were $631.4, an
increase of $3.6 million, in 2004 compared to division net sales in 2003.
* Sales of our commercial printing products increased by $2.0 million.
This increase was driven by higher sales of high impact printing
products.
* Envelope sales of our domestic operations were $5.8 million lower
driven by lower volume in the first quarter and lower average
selling prices.
* The favorable impact of the strength of the Canadian dollar on the
sales of our Canadian operations was $7.4 million.
Operating income for the six months ended June 30, 2004 was $21.9
million, $0.9 million lower than the operating income earned in the
comparable period of 2003. Division operating income of $23.0 million
declined by a similar amount. A 120 basis point, or 6.8%, improvement in
gross profit margin was offset by increases in sales and marketing expenses
and a $2.0 million increase in amortization expense.
25
CENVEO, INC. AND SUBSIDIARIES
RESALE
THREE MONTHS ENDED MARCH 31,
----------------------SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2004 2003 -------2004 2003
-------- (DOLLARS IN THOUSANDS)-------- -------- --------
Division net sales.......................................... $99,893 $103,257
======= ========
Net sales................................... $101,813 $101,218 $201,706 $204,476
Division operating income................................... $11,463 $ 11,711
Reversal of restructuring expenses......................income................... 12,359 10,401 23,822 22,114
Restructuring income.................... -- 140
-------54 -- 195
-------- -------- -------- --------
Operating income............................................ $11,463 $ 11,851
======= ========income............................ 12,359 10,455 23,822 22,309
Operating margin............................................ 11.5% 11.5%income margin..................... 12.1% 10.3% 11.8% 10.9%
21
Net sales of our resale segment declined $3.4for the second quarter of 2004
increased by $0.6 million, to $101.8 million, compared to net sales in the
second quarter of 2003. Growth in sales of business labels which began in
the first quarter of 2004 compared tocontinued during the first quarter of 2003.second quarter. Sales of
business labels increased $3.5grew $2.3 million, or 14.4%9.2%, during the quarter. This strongquarter; however,
this sales performance, however,growth was not sufficient to offset the decline in
sales in the office products retail channel, which were down $5.2 million,
or 11.0%, in the quarter compared to the prior year, andby lower sales of business forms which declined $1.7 million, or 7.0%, from the prior year.
The decline inand lower
sales of office products was due to lower retail demand for
these products which has driven increased competition and lower prices.products. Demand for traditional business forms, continuesespecially
continuous forms, continued to decline in the second quarter as users of
these products acquire laser printing capabilities.
Operating income for the second quarter of 2004 increased $1.9 million
to $12.4 million compared to operating income earned in the second quarter
of 2003. This improvement was $0.4due primarily to the sales growth of business
labels and reductions in administrative expenses.
Net sales for the six months ended June 30, 2004 were $2.8 million
lower than net sales in the comparable period of 2003. For the first half
of 2004, sales of business labels were $5.8 million higher than in 2003.
This strong sales performance was offset by lower sales in the office
products retail channel during the first quarter of 2004 and lower sales of
business forms.
Operating income for the six months ended June 30, 2004 was $1.5
million higher than operating income earned in the first quartercomparable period of
2003 primarily due to2003. The strong performance of our business labels products and lower
sales. Despitefixed expenses more than offset the decrease in sales, our resale segment has controlled its costs and
maintained its overall operating marginimpact of 11.5%.lower sales.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. Cash used in operations was $1.4$4.7 million greater
induring
the first quartersix months of 2004 than cash usedcompared to $20.2 million provided by
operations induring the first
quartercomparable period of 2003. During the first quartersix
months of 2004, we paid redemption premiums of $13.5 million to redeem our
8 3/4% senior subordinated notes. In addition, cash used for increases in
working capital during the first six months of 2004 totaled $8.9 million
compared to an increase of $0.6 million during the comparable period of
2003. This increase was primarily due to the payment of a $4.9 million
legal settlement accrued at December 31, 2003 and acceleratedincreases in inventory
needed to support new business. We do not expect the payment
of $4.7 million of interestincrease in
connection with the redemption of our 8 7/8%
senior subordinated notes.inventories to be permanent.
INVESTING ACTIVITIES. Capital expenditures were $5.6$12.5 million in the
first quarteras of
June 30, 2004 compared to $6.4$13.0 million in the first quarteras of June 30, 2003. We anticipate
capital expenditures for all of 2004 to be approximately $25.0 million.
On July 6, 2004, we purchased the stock of Valco Graphics Inc., a
commercial printing company in Seattle, Washington. The cost of this
acquisition was $9.5 million.
FINANCING ACTIVITIES. In January 2004, we sold $320 million of 7 7/8%
senior subordinated notes due 2013. The proceeds from the sale of these
notes were used to redeem the $300 million of 8 3/4% senior subordinated
notes due 2008. The cost incurred to issue the 7 7/8% senior subordinated
notes was $6.9$7.1 million. These debt issuance costs have been deferred and
will be amortized over the term of the notes. We recorded a loss of $17.7
million on the early extinguishment of the 8 3/4% senior subordinated notes
26
CENVEO, INC. AND SUBSIDIARIES
which consisted of redemption premiums of $13.5 million and unamortized
debt issuance costs of $4.2 million.
In March 2004, we amended our $300 million senior secured credit
facility to extend its term to June 2008. The cost incurred to amend the
credit facility was $1.4$1.8 million. These debt issuance costs will be
amortized over the extended term of the facility.
The following table summarizes our cash payment obligations as of March
31,June
30, 2004 by year:
OTHER LONG- PURCHASE TOTAL CASH
LONG-TERM DEBT OPERATING LEASES TERM LIABILITIES COMMITMENTS OBLIGATIONS
-------------- ---------------- ---------------- ----------- -----------
2004.................Year 1............... $ 2,5882,584 $ 32,21331,508 $ -- $540$360 $ 35,341
2005................. 2,309 27,62534,452
Year 2............... 2,340 26,797 3,521 420 33,875
2006................. 2,345 24,15533,078
Year 3............... 2,358 23,220 3,259 -- 29,759
2007................. 13,181 18,26728,837
Year 4............... 92,917 17,139 2,220 -- 33,668
2008................. 84,911 11,658112,276
Year 5............... 1,033 9,833 2,042 -- 98,61112,908
Thereafter........... 672,003 19,339 15,201671,724 18,574 15,098 -- 706,543705,396
-------- -------- ------- ---- --------
Total................ $777,337 $133,257 $26,243 $960 $937,797$772,956 $127,071 $26,140 $780 $926,947
======== ======== ======= ==== ========
At March 31,June 30, 2004, we had outstanding letters of credit of approximately
$24.8$24.9 million related to performance and payment guarantees. In addition,
we have issued letters of credit of $1.6 million as credit enhancements in
conjunction with other debt. Based on our experience with these
arrangements, we do not believe that any obligations that may arise will be
significant.
22
In conjunction with the sale of the prime label business in May 2002,
we guaranteed certain lease obligations. As of June 30, 2004, the
contingent liability under the guarantee was $5.4 million. We have not made
and do not expect to make any payments under this guarantee. See Note 4 to
the condensed consolidated financial statements for additional information
with respect to this guarantee.
Our current credit ratings are as follows:
SENIOR
SECURED SENIOR
CREDIT SENIOR SUBORDINATED
REVIEW AGENCY FACILITY NOTES DEBT LAST UPDATE
-
------------- -------- ------ ------------ -----------
Standard & Poor's......... BB BB- B April 2004
Moody's................... Ba3 B1 B3 April 2004
The terms of our existing debt agreements have no rating triggers, and
we do not believe that our current ratings will impact our ability to raise
additional capital.
We expect to be able to fund our operations, capital expenditures, debt
and other contractual commitments within the next year from internally
generated cash flow and funds available under our senior secured credit
facility. At March 31,Based on the certificate filed for June 30, 2004 activity, we had
$119.2$112.2 million of unused credit available under this credit facility.
SEASONALITY AND ENVIRONMENT
Our commercial segment experiences seasonal variations. Revenues from
annual reports are generally concentrated from February through April.
Revenues associated with holiday catalogs and automobile brochures tend to
be concentrated from July through October. As a result of these seasonal
variations, some of our commercial printing operations are at or near
capacity at certain times during these periods.
In addition, several envelope market segments and certain segments of
the direct mail market experience seasonality, with a higher percentage of
the volume of products sold to these markets
27
CENVEO, INC. AND SUBSIDIARIES
occurring during the fourth quarter of the year. This seasonality is due to
the increase in sales to the direct mail market due to holiday purchases.
The mailer operations of our resale segment are at or near capacity at
times during the fourth quarter.
Seasonality is offset by the diversity of our other products and
markets, which are not materially affected by seasonal conditions.
Environmental matters have not had a material financial impact on our
historical operations and are not expected to have a material impact in the
future.
AVAILABLE INFORMATION
Our Internet address is: www.mailwell.com.www.cenveo.com. We make available free of
charge through our website our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 as soon as reasonably practicable after such documents are
filed electronically with the Securities and Exchange Commission. In
addition, our earnings conference calls are web cast live via our website
and presentations to securities analysts are included on our website.
LEGAL PROCEEDINGS
From time to time we may be involved in claims or lawsuits that arise
in the ordinary course of business. Accruals for claims or lawsuits have
been provided for to the extent that losses are deemed probable and can be
estimated. Although the ultimate outcome of these claims or lawsuits cannot
be ascertained, on the basis of present information and advice received
from counsel, it is our opinion that the disposition or ultimate
determination of such claims or lawsuits will not have a material adverse
effect on us.
23
FORWARD-LOOKING INFORMATION
Certain statements in this report, and in particular, statements found
in Management's Discussion and Analysis of Financial Condition and Results
of Operations, constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
often identified by the words, "believe," "expect," "intend," "appear,"
"estimate," "anticipate," "project," "will" and other similar expressions.
All such statements address operating performance, events or developments
that we expect or anticipate will occur in the future and are not
historical in nature. All forward-looking statements reflect our current
views of Mail-WellCenveo with respect to future events and are subject to risks and
uncertainties. Actual results may differ materially from those expressed or
implied in these statements. As and when made, we believe that these
forward-looking statements are reasonable; however, these statements
involve known and unknown risks, including, but not limited to:
* General economic, business and labor conditions
* The ability to implement our strategic initiatives
* The ability to sustain profitability after substantial losses in 2002
and 2001 and in the first quartersix months of 2004
* The ability to successfully identify, manage or integrate possible
future acquisitions
* Salesmajority of our sales are not subject to long-term contracts
* The industry is extremely competitive due to over capacity in the
industry
* The impact of the Internet and other electronic media on the demand
for envelopes and printed material
* Postage rates and other changes in the direct mail industry
28
CENVEO, INC. AND SUBSIDIARIES
* Environmental laws may affect our business
* The ability to retain key management personnel
* Compliance with recently enacted and proposed changes in laws and
regulations affecting public companies could be burdensome and
expensive
* The ability to successfully identify, manage and integrate possible
future acquisitions
* Dependence on suppliers and the costs of paper and other raw
materials and the ability to pass paper price increases onto
customers
* The ability to meet customer demand for additional value-added
products and services
* Changes in interest rates and currency exchange rates of the Canadian
dollar
* The ability to manage operating expenses
* The risk that a decline in business volume or profitability could
result in a further impairment of goodwill
* The ability to timely or adequately respond to technological changes
in our industry
* The ability to extend our current credit facility beyond 2008
In view of such uncertainties, investors should not place undue
reliance on any forward-looking statements since such statements speak only
as of the date when made. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks such as changes in interest and foreign
currency exchange rates, which may adversely affect results of our
operations and our financial position. We have operations in Canada, and
thus are exposed to market risk for changes in foreign currency exchange
rates of the Canadian dollar. Risks from interest and foreign currency
exchange rate fluctuations are managed through normal operating and
financing activities. We do not utilize derivatives for speculative
purposes, nor have we hedged interest rate 24
exposure through the use of
swaps and options or foreign exchange exposure through the use of forward
contracts. Our Board of Directors has given
management authority to engage in interest rate swaps and we are currently
considering this option.
Exposure to market risk from changes in interest rates relates
primarily to our variable rate debt obligations. The interest on this debt
is the London Interbank Offered Rate ("LIBOR") plus a margin. At March 31,June 30,
2004, we had variable rate debt outstanding of $100.3 million. A 1%
increase in LIBOR on the maximum amount of debt subject to variable
interest rates, which is $316.4 million, would increase our annual interest
expense by $3.2 million.
We have operations in Canada, and thus are exposed to market risk for
changes in foreign currency exchange rates of the Canadian dollar.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our chief executive
officer and our chief financial officer, after evaluating the effectiveness
of our "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the
"Evaluation Date") within 90 days before the filing date of this report,
have concluded that as of the Evaluation Date, our disclosure controls and
procedures were adequate and designed to ensure that material information
relating to us and our consolidated subsidiaries would be made known to
them by others within those entities.
CHANGES IN INTERNAL CONTROLS. There were no significant changes in our
internal controls or procedures or in other factors that could
significantly affect our disclosure controls and procedures subsequent to
the Evaluation Date.
2529
PART II OTHER INFORMATION
ITEM 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On April 29, 2004, the Company held its Annual Meeting of Stockholders,
at which the following matters were voted upon:
ELECTION OF DIRECTORS--The following individuals were elected or
re-elected to the Board of Directors by the following vote:
NAME FOR WITHHOLD
----------------------------------------- ---------- ---------
Paul V. Reilly 42,151,726 3,016,492
Thomas E. Costello 42,202,747 2,965,471
Martin J. Maloney 42,157,190 3,011,027
David M. Olivier 42,238,168 2,930,049
Jerome W. Pickholz 42,404,619 2,763,599
Alister W. Reynolds 42,155,190 3,013,027
Susan O. Rheney 41,361,028 3,807,190
AMENDMENT OF ARTICLES OF INCORPORATION--A proposal to amend the
articles of incorporation to change the Company's name to Cenveo, Inc., was
approved by the following vote: 40,219,570 For, 4,765,497 Against, 183,149
Abstentions.
AMENDMENT OF 2001 LONG TERM EQUITY INCENTIVE PLAN--A proposal to amend
the Company's 2001 Long Term Equity Incentive Plan, increasing the number
of shares reserved for issuance under the Plan to 7,450,000 and increasing
the number of shares that may be granted as awards other than options, was
approved by the following vote: 29,214,882 For, 7,548,684 Against, 668,145
Abstentions.
SELECTION OF AUDITORS--The selection by the Audit Committee of Ernst &
Young LLP as independent auditors of the Company for the fiscal year ending
December 31, 2004 was ratified by the following vote: 44,666,635 For,
311,452 Against, 175,628 Abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------
3.1 CertificateArticles of Incorporation of Mail-Well Corporation--incorporatedthe Company--incorporated by reference
from Mail- Well I Corporation'sExhibit 3(i) of the Company's Form S-4 filed March
15, 1999 (Reg. No. 333-74409).
3.210-Q for the quarter ended
June 30, 1997.
3.2* Articles of Amendment to the Articles of Incorporation of the
Company dated May 17, 2004.
3.3 Bylaws of the Company--incorporated by reference from Exhibit 3(ii)
of the Company's Form 10-Q for the quarter ended June 30, 1997.
3.4* Certificate of Amendment of Certificate of Incorporation of Mail-Well Corporation-- incorporated by reference fromCenveo
Corporation (formerly known as Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No. 333-74409).
3.3 Certificate of Correction Filed to Correct Certain Errors in the
Certificate of Amendment of Mail-Well I Corporation Filed in the
Office of the Secretary of State of Delaware on September 11,
1995--incorporated by reference from Mail-Well I Corporation's Form
S-4 filed March 15, 1999 (Reg. No. 333-74409).
3.4 Certificate of Change of Registered Agent and Registered
Office--incorporated by reference from Mail-Well I Corporation's
Form S-4 filed March 15, 1999 (Reg. No. 333-74409).Corporation) dated May
14, 2004.
3.5 Bylaws of Mail-Well I Corporation--incorporated by reference from
Mail-Well I Corporation's Form S-4 filed March 15, 1999 (Reg. No.
333-74409).
4.1 Indenture dated as of March 13, 2002 between Mail-Well I
Corporation and State Street Bank and Trust Company, as Trustee
relating to Mail-Well I Corporation's $350,000,000 aggregate
principal amount of 9 5/8% Senior Notes due 2012--incorporated by
reference to Exhibit 10.30 to Mail-Well, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002.
30
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.2 Form of Senior Note and Guarantee relating to Mail-Well I
Corporation's $350,000,000 aggregate principal amount 9 5/8% due
2012--incorporated by reference to Exhibit 10.31 to Mail-Well,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended March
31, 2002.
4.3 Indenture dated as of February 4, 2004 between Mail-Well I
Corporation and U.S. Bank National Association, as Trustee, and
Form of Senior Subordinated Note and Guarantee relating to
Mail-Well I Corporation's $320,000,000 aggregate principal amount
of 7 7/8 Senior Subordinated Notes due 2013--incorporated by
reference to Exhibit 4.5 to Mail-Well, Inc.'s Annual Form 10-K
filed February 27, 2004.
4.4 Registration Rights Agreement dated February 4, 2004, between
Mail-Well I Corporation and Credit Suisse First Boston, as Initial
Purchaser, relating to Mail-Well I Corporation's $320,000,000
aggregate principal amount of 7 7/8 Senior Subordinated Notes due
2013-- incorporated2013--incorporated by reference to Exhibit 4.6 to Mail-Well, Inc.'s
Annual Form 10-K filed February 27, 2004.
10.1 Form of Indemnity Agreement between Mail-Well, Inc. and each of its
officers and directors--incorporated by reference from Exhibit
10.17 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated
March 25, 1994.
10.2 Form of Indemnity Agreement between Mail-Well I Corporation and
each of its officers and directors--incorporated by reference from
Exhibit 10.18 of Mail-Well, Inc.'s Registration Statement on Form
S-1 dated March 25, 1994.
10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as of
February 23, 1994 and related Employee Stock Ownership Plan Trust
Agreement--incorporated by reference from Exhibit 10.19 of
Mail-Well, Inc.'s Registration Statement on Form S-1 dated March
25, 1994.
26
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.4 Form of M-W Corp. 401(k) Savings Retirement Plan--incorporated by
reference from Exhibit 10.20 of Mail-Well, Inc.'s Registration
Statement on Form S-1 dated March 25, 1994.
10.5 Form of Mail-Well, Inc. Incentive Stock Option Agreement--
incorporated by reference from Exhibit 10.22 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated March 25, 1994.
10.6 Form of Mail-Well, Inc. Nonqualified Stock Option Agreement--
incorporated by reference from Exhibit 10.23 of Mail-Well, Inc.'s
Registration Statement on Form S-1 dated March 25, 1994.
10.7 1997 Non-Qualified Stock Option Agreement--incorporated by
reference from Exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the
quarter ended March 31, 1997.
10.8 Mail-Well, Inc. 1998 Incentive Stock Option Plan Incentive Stock
Option Agreement--incorporated by reference from Exhibit 10.59 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998.
10.9 Mail-Well, Inc. 2001 Long-Term Equity Incentive Plan--incorporated
by reference from the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001.
10.10 Form of Non-Qualified Stock Option Agreement under 2001 Long-Term
Equity Incentive Plan--incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
10.11 Form of Incentive Stock Option Agreement under 2001 Long-Term
Equity Incentive Plan--incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
31
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.12 Form of Restricted Stock Award Agreement under 2001 Long-Term
Equity Incentive Plan--incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
10.13 Purchase Agreement dated March 8, 2002, between Mail-Well I
Corporation, and Credit Suisse First Boston, UBS Warburg LLC, Banc
of America Securities LLC, U.S. Bancorp Piper Jaffray Inc., First
Union Securities, Inc., and Scotia Capital (USA) Inc., as Initial
Purchasers, relating to Mail-Well I Corporation's $350,000,000
aggregate principal amount of 9 5/8% Senior Notes due 2012--incorporated2012--
incorporated by reference to Exhibit 10.30 to Mail-Well I
Corporation's Registration Statement on Form S-4 filed June 11, 2002.
10.14 Registration Rights Agreement dated March 13, 2002, between
Mail-Well I Corporation, and Credit Suisse First Boston, UBS
Warburg LLC, Banc of America Securities LLC, U.S. Bancorp Piper
Jaffray Inc., First Union Securities, Inc., and Scotia Capital
(USA) Inc., as Initial Purchasers, relating to Mail-Well I
Corporation's $350,000,000 aggregate principal amount of 9 5/8%
Senior Notes due 2012--incorporated by reference to Exhibit 10.32
to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002.
10.15 Second Amended and Restated Equipment Lease dated as of August 6,
2002 between Wells Fargo Bank Northwest, National Association, as
trustee under MW 1997-1 Trust, and Mail-
WellMail-Well I Corporation--incorporatedCorporation--
incorporated by reference to Exhibit 10.26 of Mail-Well, Inc.'s
Form 10-Q for the quarter ended September 30, 2002.
10.16 Second Amended and Restated Guaranty Agreement dated as of August
6, 2002, among Mail-Well I Corporation as Lessee, certain of its
subsidiaries and Mail-Well, Inc. as Guarantors, Fleet Capital
Corporation as Agent, and the Trust Certificate Purchasers named
therein--incorporated by reference to Exhibit 10.27 of Mail-Well,
Inc.'s Form 10-Q for the quarter ended September 30, 2002.
27
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.17 Second Amended and Restated Participation Agreement dated as of
August 6, 2002, among Mail-Well I Corporation as Lessee, Fleet
Capital Corporation as Arranger and Agent, and the Trust
Certificate Purchasers named therein--incorporated by reference to
Exhibit 10.28 of Mail-Well, Inc.'s Form 10-Q for the quarter ended
September 30, 2002.
10.18 Amendment Agreement No. 1 dated as of September 25, 2002, among
Mail-Well I Corporation as Lessee, certain of its subsidiaries and
Mail-Well, Inc. as Guarantors, Fleet Capital Corporation as Agent,
and the Trust Certificate Purchasers named therein--incorporated by
reference to Exhibit 10.29 of Mail-Well, Inc.'s Form 10-Q for the
quarter ended September 30, 2002.
10.19 Employment and Executive Severance Agreement dated as of March 10,
2003, between the Company and Paul V. Reilly--incorporated by
reference to Exhibit 10.26 of the Company's Annual Form 10-K filed
March 31, 2003.
10.20 Form of Executive Severance Agreement entered into between the
Company and each of the following: Michel Salbaing, Gordon
Griffiths, Brian Hairston, Keith Pratt, William Huffman, D. Robert
Meyer and Mark Zoeller--incorporated by reference to Exhibit 10.27
of the Company's Annual Form 10-K filed March 31, 2003.
10.21*10.21 Amendment Agreement No. 2 dated as of March 25, 2004 among
Mail-Well I Corporation as Lessee, certain of its subsidiaries and
Mail-Well, Inc. as Guarantor, Fleet Capital Corporation as Agent,
and the Trust Purchasers named therein.
10.22*therein--incorporated by reference
to Exhibit 10.21 of the Company's Form 10-Q for quarter ended March
31, 2004.
32
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.22 Second Amended and Restated Credit Agreement dated March 25, 2004
among Mail-Well, Inc., Mail-Well I Corporation, certain
subsidiaries of Mail-Well I, the lenders under the Second Amended
and Restated Credit Agreement, and Bank of America, N.A., as
administrative agent for the lenders.
10.23*lenders--incorporated by reference to
Exhibit 10.22 of the Company's Form 10-Q for quarter ended March
31, 2004.
10.23 Second Amended and Restated Security Agreement dated March 25, 2004
among Mail-Well, Inc., Mail-Well I Corporation, certain
subsidiaries of Mail-Well I, the lenders under the Second Amended
and Restated Credit Agreement, and Bank of America, N.A., as
administrative agent for the lenders.lenders--incorporated by reference to
Exhibit 10.23 of the Company's Form 10-Q for quarter ended March
31, 2004.
10.24* Cenveo, Inc. 2001 Long-Term Equity Incentive Plan, as amended.
31.1* Certification of Periodic Report by Paul V. Reilly, President and
Chief Executive Officer, pursuant to Section 302 of the Sarbanes-OxleySarbanes-
Oxley Act of 2002.
31.2* Certification of Periodic Report by Michel P. Salbaing, Senior Vice
President--Finance and Chief Financial Officer, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification of Periodic Report by Paul V. Reilly, President and
Chief Executive Officer, pursuant to Section 906 of the Sarbanes-OxleySarbanes-
Oxley Act of 2002.
32.2** Certification of Periodic Report by Michel P. Salbaing, Senior Vice
President--Finance and Chief Financial Officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
- -----------------------
* Filed herewith.
** Furnished herewith.
28
(b) REPORTS ON FORM 8-K
1. Current report filed under Item 5 of Form 8-K dated as of January 21,May 17,
2004 in connection with the Company amending its articles of
incorporation to change its name, and a tender offer and consent
solicitation forchange in the symbol under
which the Company's 8 3/4% Senior Subordinated Notes
due 2008.common stock is traded.
2. Current report filed under Item 9 of Form 8-K dated as of May 6,
2004 in connection with the Company's earnings release.
3. Current report filed under Item 5 of Form 8-K dated as of February 9, 2004 in connection with the accompanying pro forma
condensed consolidated income statements.
3. Current report filed under Item 9 of Form 8-K dated as of
February 9, 2004 in connection with the Company's earnings release
for the fourth quarter.
4. Current report filed under Item 5 of Form 8-K dated as of
February 17,May 6,
2004 in connection with the transcript of the Company's investor
conference call held on February 9,May 3, 2004.
2933
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the
city of Englewood, state of Colorado, on May 3,July 30, 2004.
MAIL-WELL,CENVEO, INC.
By: /s/ PAUL V. REILLY
----------------------------------------------------------------------------------------
Paul V. Reilly, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ MICHEL P. SALBAING
----------------------------------------------------------------------------------------
Michel P. Salbaing, Senior Vice President--
Finance and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
3034