By Susan Kelly of Raine Consulting August 6, 2003 - Denver, CO - based Mail-Well (NYSE: MWL) announces their second quarter results for 2003. Second quarter sales were $408 million, a 3.1% decrease from the $421 million in sales for the same quarter in 2002. Net loss was $2.3 million, or ($0.05) per share, as compared to a net loss of $38.2 million for the second quarter 2002. The results reflected a $9.3 million restructuring charge, a loss of $8.7 million on debt refinancing, together with impairment losses related to discontinued operations and assets held for sale of $19.3 million. Topics include: * Summary Financial Results and Guidance 2003 * Segment Results * Chairman Comments * Q & A Summary Financials and Guidance 2003 Mr. Paul Reilly, Chairman, President and CEO, and Mr. Michel Salbaing, CFO, started the conference call by stating that sales were up 2% when excluding the $21 million from divested operations. They were pleased with their results despite the seasonally weaker quarter. EBITDA was $27.3 million which was a 39% improvement overall from last year. They reiterated their Q1 estimate for further EBITDA improvement and for the full year to be in $130-$140 million range. Net cash used in the second quarter was $33.6 million as compared to $13.4 million in the first quarter. Free cash flow includes an $11 million tax refund. They expect the operations will contribute $75 million in cash for the full year. Capital expenditures were $7.2 million for quarter ($13.6 million for the first six months 2003) out of an expected $30 - 35 million for the full year 2003. Second quarter 2003 had total debt of $768 million. In second quarter they drew $98 million from their bank line with $123 million of further availability. Segment Results Commercial Print Group: Print sales were $187 million which was a 7.4% increase from second quarter 2002. Revenues were helped by $21 million extra sales from American Express. The CFO commented that "EBITDA to Sales ratios improved from 4.3% last quarter to 4.7% which is a reflection of cost control and operations improvements. Margins are still low because of overcapacity in the marketplace which is driving down prices." Envelope Group: Revenues were $171 million for the quarter. Despite a 12.3% decrease in sales from $195 million in second quarter 2002, the EBITDA remains very strong going from $16.8 million in second quarter 2002 to $18.6 million for same period in 2003; an 11% increase. Pricing wars in the market are causing them to walk away from unprofitable sales. However, labor, as a percentage of sales, has dropped 60 basis points. Print Office Products: Second quarter performance 2003 was very similar to the same period in 2002. Sales were $50.3 million with EBITDA of $6.1 million. Sales decline is primarily from multi-ply business forms. Chairman Comments The Chairman is "cautiously optimistic that all signs point toward improving industry conditions" and gave an update on the positive and negative drivers for the Mail-Well business: Positive Drivers: 1. New business: American Express relationship has yielded $30 million in new sales. Vertical markets, such as the pharmaceutical industry and aided by their Total Company Solutions initiative, has yielded new customers such as Bristol Meyers, Glaxo Smith Kline, the Gap and Old Navy. 2. New products: Mail-Well's digitally-created photographic images of cars saves customers (i.e. Chrysler) money and accelerates product launches. Pressables are very large pressure sensitive labels which are removable and have applications in packaging, advertising, point of sale, and private label markets. 3. Efficiency programs: Mainly driven by the closure of 10 envelope plants, and the closure of 2 office product plants. Consolidation of web operations in commercial printing has also saved $1.7 million to date. Negative Drivers: 1. Weak industry sales: The Chairman stated that "recent earnings releases indicate that there is an imminent rebound in business capital investments and advertisement which will fuel market growth." 2. Pricing pressures: Print segment has counteracted price decreases by volume and by cost cutting. This doesn't hold in the envelope segment. Both are impacted by a "soft economic environment and an industry plagued by overcapacity." 3. Rising Employee Benefits: Costs are increasing $2 million per quarter. 4. Training investments: Employee training in safety, customer service, quality, and productivity has cost $2 million YTD. So far Mail-Well University has had 900 employees for Supervisory Training, 130 for Quality, and 9,000 of Mail-Well's 10,000 employees have attended sessions for Balance Scorecard. Additional comments from the Chairman: * Telemarketing "No Call List" will have a positive impact on direct mail sales according industry experts. Marketers will be switching dollars over to direct mail programs. * Recent improvements in business confidence levels will increase advertising spend starting in 2003. Print associations (NAPL and PIA) estimate that print growth will range 1.0%-2.4% in 2003, and 3.2%-4.1% in 2004. * Mail-Well expects $40 million in free cash flow for the year. Q&A: 1. Envelope's second quarter is always weaker seasonally and the Middle East war contributed to the situation of reduced sales. What is unusual is the difficult price environment. Mail-Well believes they are the lowest cost producer for envelopes. Anticipate business will come back to normal levels in about 2-3 weeks. "Capacity is running in the 70% level however they measure on a 24x7 basis, as compared to our competitors at the 40% range who measure 5 days at 7 hours." 2. Analysts asked about the possibility of more plant closings in the near term. Reilly answered that they "are always looking for opportunities to reduce costs; however there are no closures in the planning stages right now. No doubt the industry expects a pick-up in print, especially in direct mail; therefore the need to service customers and reduce costs will become the driver to close plants." 3. Additional capital expenditures of $20 million for the balance of the year will be for computer and press equipment and as per the CFO "nothing earth shattering." 4. General advertising markets impact commercial printing sales. They estimate that over 50% over their print is driven by advertising spend. Direct mail runs up and down depending on paper prices and postal rates. "We may need to go another round of advertising budgets before we see a pick up. For envelopes, revenues may increase on the demise of telemarketing" according to Reilly. 5. Paper prices are in free fall and going down. Summer doldrums are really taking a toll on paper prices. "This is helping mitigate the pricing impact but not all of it." 6. Telemarketing calls are being reduced 25-50% therefore direct mail will go up. The 1996 decrease in direct mail sales went to telemarketing and now that money is coming back…it's only a function of time. 7. Total Company Solution allows the company not to act as 3 business segments but as 1 segment which is the major driver of sales growth, the differentiator from their competitors, and takes them further away from being a transactional company. This initiative removes them from the day-to-day jobs to managing the entire supply chain of their customers and they are seeing significant sales in this area. 8. Envelope sales declined 6% year over year and it is principally attributable to the direct mail decline. Mail-Well hasn't seen the impact of electronic bill presentment as yet. ------------------------------------------------------------------------