UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 24, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________________ to
Commission File Number 0-24383
WORKFLOW MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1507104
(State of other jurisdiction (I.R.S. Employer
incorporation or organization.) Identification No.)
240 Royal Palm Way
Palm Beach, FL 33480
(Address of principal executive offices) (Zip Code)
(561) 659-6551
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 .
As of December 4, 1998, there were 13,372,427 shares of common stock
outstanding.
WORKFLOW MANAGEMENT, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet..............................................................................3
October 24, 1998 (unaudited) and April 25, 1998
Consolidated Statement of Income (unaudited)............................................................4
For the three months ended October 24, 1998 and October 25, 1997 and
for the six months ended October 24, 1998 and October 25, 1997
Consolidated Statement of Cash Flows (unaudited)........................................................5
For the six months ended October 24, 1998 and October 25, 1997
Notes to Consolidated Financial Statements (unaudited)..................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................................................13
Item 3. Quantitative and Qualitative Disclosure About Market Risk..............................................21
PART II - OTHER INFORMATION
Item 5. Other Information......................................................................................22
Item 6. Exhibits and Reports on Form 8-K.......................................................................22
Signatures........................................................................................................23
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
October 24, April 25,
1998 1998
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,084 $ 234
Accounts receivable, less allowance for doubtful
accounts of $3,368 and $2,859, respectively 60,112 56,328
Inventories 31,913 32,655
Prepaid expenses and other current assets 3,130 1,978
------------ ------------
Total current assets 96,239 91,195
Property and equipment, net 34,012 33,210
Notes receivable from employees 3,703
Intangible assets, net 22,791 14,014
Other assets 7,787 4,556
------------ ------------
Total assets $ 160,829 $ 146,678
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 655 $ 5,855
Short-term payable to U.S. Office Products 13,536
Accounts payable 28,034 25,370
Accrued compensation 5,724 4,916
Other accrued liabilities 6,237 7,893
------------ ------------
Total current liabilities 40,650 57,570
Long-term debt 52,864 7,065
Long-term payable to U.S. Office Products 19,221
Deferred income taxes 3,972 3,314
Other long-term liabilities 13 17
------------ ------------
Total liabilities 97,499 87,187
------------ ------------
Commitments and contingencies
Stockholders' equity:
Divisional equity 50,270
Preferred stock, $.001 par value, 1,000,000 shares
authorized, none outstanding
Common stock, $.001 par value, 150,000,000 shares
authorized, 13,414,327 and no shares issued and
outstanding, respectively 13
Additional paid-in capital 55,312
Stock subscription notes receivable (1,951)
Accumulated other comprehensive loss (3,241) (1,056)
Retained earnings 13,197 10,277
------------ ------------
Total stockholders' equity 63,330 59,491
------------ ------------
Total liabilities and stockholders' equity $ 160,829 $ 146,678
============ ============
See accompanying notes to consolidated financial statements.
Page 3
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
October 24, October 25, October 24, October 25,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues $ 90,100 $ 88,884 $ 180,586 $ 171,047
Cost of revenues 64,973 65,570 130,921 125,838
------------ ------------ ------------ -----------
Gross profit 25,127 23,314 49,665 45,209
Selling, general and administrative expenses 19,475 18,421 38,544 35,292
Goodwill amortization expense 133 51 266 100
Strategic restructuring plan costs 3,818
------------ ------------ ------------ ------------
Operating income 5,519 4,842 7,037 9,817
Interest expense 801 568 1,955 1,109
Interest income (60) (9) (85) (9)
Other income (65) (69) (47) (167)
------------ ------------ ------------ ------------
Income before provision for income taxes 4,843 4,352 5,214 8,884
Provision for income taxes 2,131 1,770 2,294 3,599
------------ ------------ ------------ ------------
Net income $ 2,712 $ 2,582 $ 2,920 $ 5,285
============ ============ ============ ============
Income per share:
Basic $ 0.19 $ 0.18 $ 0.19 $ 0.37
Diluted $ 0.19 $ 0.17 $ 0.19 $ 0.36
Weighted average common shares outstanding:
Basic 14,396 14,715 15,330 14,443
Diluted 14,396 15,106 15,435 14,761
See accompanying notes to consolidated financial statements.
Page 4
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
--------------------------
October 24, October 25,
1998 1997
---------- ----------
Cash flows from operating activities:
Net income $ 2,920 $ 5,285
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 3,246 3,129
Strategic restructuring plan costs 3,818
Cash paid for strategic restructuring plan costs (2,226)
Changes in assets and liabilities (net of assets acquired and
liabilities assumed in business combinations):
Accounts receivable (615) (3,274)
Inventory 1,595 (1,147)
Prepaid expenses and other current assets (553) 197
Accounts payable (2,582) (1,838)
Accrued liabilities 7,384 (775)
----------- ----------
Net cash provided by operating activities 12,987 1,577
----------- ----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received (13,238) 114
Additions to property and equipment (3,349) (2,456)
Cash received on the sale of property and equipment 138
Cash collection of notes receivable from employees 3,703
Deposits on equipment (1,000)
Payments of non-recurring acquisition costs (906)
Net cash used in investing activities (13,746) (3,248)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 74,934 1,709
Payments on long-term debt (29,135) (1,802)
Proceeds from (payments of) short-term debt, net (5,180) 570
Cash paid for deferred financing costs (3,042)
Retirement of common stock (6,419)
Issuance of stock subscription notes receivable (1,951)
Payments to U.S. Office Products (36,096) (600)
Capital contributed by U.S. Office Products 8,518
---------- ----------
Net cash provided by (used in) financing activities 1,629 (123)
---------- ----------
Effect of exchange rates on cash and cash equivalents (20) 11
---------- ----------
Net increase (decrease) in cash and cash equivalents 850 (1,783)
Cash and cash equivalents at beginning of period 234 2,168
---------- ----------
Cash and cash equivalents at end of period $ 1,084 $ 385
========== ==========
(Continued)
Page 5
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
(Continued)
Six Months Ended
---------------------------
October 24, October 25,
1998 1997
----------- -----------
Supplemental disclosures of cash flow information:
Interest paid $ 1,235 $ 364
Income taxes paid $ 2,803 $ 2,063
The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method during the six months ended
October 24, 1998 and October 25, 1997. The fair values of the assets and
liabilities at the respective dates of acquisition are presented as follows:
Six Months Ended
--------------------------
October 24, October 25,
1998 1997
----------- ----------
Accounts receivable $ 3,712 $ 1,109
Inventory 1,764 41
Prepaid expenses and other current assets 87 26
Property and equipment 1,621 84
Intangible assets 9,043 1,445
Accounts payable (2,320) (332)
Accrued liabilities (669) (365)
Long-term debt (10)
----------- ----------
Net assets acquired $ 13,238 $ 1,998
=========== ==========
The acquisitions accounted for under the purchase method were funded as follows:
Six Months Ended
--------------------------
October 24, October 25,
1998 1997
---------- ----------
Common stock $ $ 2,112
Cash paid, net of cash received 13,238 (114)
----------- ----------
Total $ 13,238 $ 1,998
=========== ==========
See accompanying notes to consolidated financial statements.
Page 6
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 1 - NATURE OF BUSINESS
Workflow Management, Inc. (the "Company" or "Workflow Management") is a Delaware
corporation formed by U.S. Office Products Company, also a Delaware corporation
("U.S. Office Products" or "USOP"), in connection with U.S. Office Products'
strategic restructuring plan that was consummated June 9, 1998 (the "Strategic
Restructuring Plan"). As part of its Strategic Restructuring Plan, U.S. Office
Products (i) transferred to the Company substantially all the assets and
liabilities of U.S. Office Products' Print Management Division and (ii)
distributed to holders of U.S. Office Products' common stock 14,625 shares (the
"Distribution" or "Workflow Distribution") of the Company's common stock, par
value $.001 per share ("Company Common Stock"). Holders of U.S. Office Products'
common stock were not required to pay any consideration for the shares of the
Company Common Stock they received in the Distribution. The Distribution
occurred on June 9, 1998 (the "Distribution Date").
Workflow Management is a leading graphic arts company providing a "one-stop
shop" e-commerce solution for businesses to purchase office consumables via the
Internet. The Company employs over 2,100 people in North America, including a
500-person salesforce. Workflow Management has manufacturing operations located
throughout the United States and Canada which produce envelopes, commercial
printing products and documents. The Company seeks to become a consolidator in
the highly fragmented graphic arts industry. The Company currently has 18
manufacturing facilities in seven states and five Canadian provinces, 27
distribution centers, eight print-on-demand centers and 60 sales offices.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of Workflow Management
and the companies acquired in business combinations accounted for under the
purchase method from their respective dates of acquisition.
For periods prior to the Distribution Date, the consolidated financial
statements reflect the assets, liabilities, divisional equity, revenues and
expenses that were directly related to the Company as it was operated within
U.S. Office Products. Upon the Distribution, divisional equity was reclassified
to common stock and additional paid-in-capital. In cases involving assets and
liabilities not specifically identifiable to any particular business of U.S.
Office Products, only those assets and liabilities transferred to the Company
prior to the Distribution were included in the Company's separate consolidated
balance sheet. The Company's statement of income includes all of the related
costs of doing business including an allocation of certain general corporate
expenses of U.S. Office Products incurred prior to the Distribution Date which
were not directly related to these businesses. These allocations were based on a
variety of factors, dependent upon the nature of the costs being allocated.
Management believes these allocations were made on a reasonable basis.
Page 7
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair presentation of such operations. All such adjustments are of a normal
recurring nature. Operating results for interim periods are not necessarily
indicative of results that may be expected for the year as a whole. The
consolidated financial statements included in this Form 10-Q should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended April 25, 1998 ("Fiscal 1998").
NOTE 3 - LONG-TERM DEBT
The Company entered into a secured $150,000 revolving credit facility (the
"Credit Facility") underwritten and agented by Bankers Trust Company on June 9,
1998. The Credit Facility matures on June 10, 2003 and is secured by
substantially all assets of the Company. The Credit Facility is subject to terms
and conditions typical of a credit facility of such type and size, including
certain financial covenants. Interest rate options are available to the Company
conditioned on certain leverage tests. At October 24, 1998, the Company's
leverage test would have allowed borrowing at 0.75% over the LIBOR rate. The
maximum rate of interest is the prime rate from time to time in effect. The
Credit Facility is also available to fund the cash portion of future
acquisitions, subject to the maintenance of bank covenants.
NOTE 4 - STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the six months ended October 24, 1998
were as follows:
Stockholders' equity balance at April 25, 1998 $ 59,491
Capital contributions:
Contribution by U.S. Office Products 8,518
Stock options tendered in the USOP equity tender offer by the Company's employees 2,956
Purchase and retirement of Company Common Stock (6,419)
Issuance of stock subscription notes receivable (1,951)
Comprehensive income 735
------------
Stockholders' equity balance at October 24, 1998 $ 63,330
============
Page 8
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Comprehensive Income
Effective April 26, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130 "Reporting Comprehensive Income" which establishes
standards for reporting and display of changes in equity from non-owner sources
in the financial statements. The statement requires minimum pension liability
adjustments, unrealized gains or losses on available-for-sale securities and
foreign currency translation adjustment, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income.
The components of comprehensive income are as follows:
Three Months Ended Six Months Ended
--------------------------- -------------------------
October 24, October 25, October 24, October 25,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net income $ 2,712 $ 2,582 $ 2,920 $ 5,285
Other comprehensive income:
Foreign currency translation adjustment (766) (286) (2,185) (55)
------------ ------------ ------------ -----------
Comprehensive income $ 1,946 $ 2,296 $ 735 $ 5,230
============ ============ ============ ===========
Notes Receivable from the Sale of Stock
In August 1998, the Company's board of directors approved a program under which
the Company would extend both secured and unsecured loans to certain members of
management for the purchase, in the open market, of Company Common Stock by
those individuals. The secured notes are full recourse promissory notes bearing
interest at 6.75% per annum and are collateralized by both the stock purchased
with these loan proceeds and an equal amount of pledged Company Common Stock
personally owned by those management members participating in the program. The
unsecured notes are full recourse promissory notes bearing interest at
6.75% per annum. Principal and interest is payable at maturity,
September 1, 1999. The outstanding balance on the secured and unsecured
notes at October 24, 1998 totaled $1,101 and $850, respectively, and
is reflected as stock subscription notes receivable in the
accompanying balance sheet.
Retirement of Company Common Stock
In August 1998, the Company's board of directors approved a stock repurchase
program plan (the "Stock Repurchase Program") whereby the Company's management
is authorized to repurchase and retire up to $15,000 of Company Common Stock.
Under the program, Company Common Stock is bought by the Company at prevailing
market prices at the time of the repurchase. During the three months ended
October 24, 1998, a total of 1,211 shares of Company Common Stock had been
purchased and retired at a cost of $6,419.
Distribution Ratio
At the Distribution Date, U.S. Office Products distributed to its shareholders
one share of Company Common Stock for every 7.5 shares of U.S. Office Products
common stock held by each respective shareholder. The share data reflected in
the accompanying financial statements represents the historical share data for
U.S. Office Products for the period or as of the date indicated, and
retroactively adjusted to give effect to the one for 7.5 distribution ratio.
Page 9
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 5 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for computing
and presenting earnings per share ("EPS"). SFAS No. 128 requires the dual
presentation of basic and diluted EPS on the face of the statement of income.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Company adopted SFAS No. 128 during Fiscal 1998 and has
restated all prior period EPS data. The following information presents the
Company's computations of basic and diluted EPS for the periods presented in the
consolidated statement of income:
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ -----------
Three months ended October 24, 1998:
Basic EPS $ 2,712 14,396 $ 0.19
=========
Effect of dilutive employee stock options*
--------- ---------
Diluted EPS $ 2,712 14,396 $ 0.19
========= ========= =========
Three months ended October 25, 1997:
Basic EPS $ 2,582 14,715 $ 0.18
=========
Effect of dilutive employee stock options* 391
--------- ---------
Diluted EPS $ 2,582 15,106 $ 0.17
========= ========= =========
Six months ended October 24, 1998:
Basic EPS $ 2,920 15,330 $ 0.19
=========
Effect of dilutive employee stock options* 105
--------- ---------
Diluted EPS $ 2,920 15,435 $ 0.19
========= ========= =========
Six months ended October 25, 1997:
Basic EPS $ 5,285 14,443 $ 0.37
=========
Effect of dilutive employee stock options* 318
--------- ---------
Diluted EPS $ 5,285 14,761 $ 0.36
========= ========= =========
* The Company had additional employee stock options outstanding during the
periods presented that were not included in the computation of diluted EPS
because they were anti-dilutive.
Page 10
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 6 - BUSINESS COMBINATIONS
During the six month period ended October 24, 1998, the Company completed two
business combinations which were accounted for under the purchase method for an
aggregate purchase price of $13,238 consisting entirely of cash. The total
assets related to these acquisitions were $16,227, including intangible assets
of $9,043. The results of these acquisitions have been included in the Company's
results from their respective dates of acquisition.
During Fiscal 1998, the Company made two acquisitions accounted for under the
purchase method for an aggregate purchase price of $14,868, consisting of common
stock with a market value of $2,112 and cash of $12,756. The total assets
related to these acquisitions were $18,835, including intangible assets of
$13,269. The results of these acquisitions have been included in the Company's
results from their respective dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the three and six month periods ended October 24, 1998 and October
25, 1997, as if the Strategic Restructuring Plan, the Stock Repurchase Program
and the purchase acquisitions completed since the beginning of Fiscal 1998 had
been consummated at the beginning of Fiscal 1998. The pro forma results of
operations include certain pro forma adjustments including the amortization of
intangible assets, reductions in executive compensation at the acquired
companies and an increase in corporate overhead expenses as if the Company was a
stand-alone entity for the entire period:
Three Months Ended Six Months Ended
--------------------------- --------------------------
October 24, October 25, October 24, October 25,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenues $92,655 $93,525 $185,757 $182,379
Net income 2,658 2,100 5,194 4,470
Earnings per share:
Basic 0.20 0.16 0.39 0.33
Diluted 0.20 0.15 0.38 0.33
The pro forma results of operations are prepared for comparative purposes only
and do not necessarily reflect the results that would have occurred had the
acquisitions, the Stock Repurchase Program and the Strategic Restructuring Plan
occurred at the beginning of Fiscal 1998 or the results that may occur in the
future.
NOTE 7 - SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual and interim financial
statements. Operating segments are determined consistent with the way management
organizes and evaluates financial information internally for making decisions
and assessing performance. It also requires related disclosures about products,
geographic areas and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS No. 131 for
the year ending April 24, 1999. Implementation of this disclosure standard will
not affect the Company's financial position or results of operations.
Page 11
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 8 - SUBSEQUENT EVENTS
Retirement of Company Common Stock
Subsequent to October 24, 1998 and through December 4, 1998, the Company
repurchased and retired 42 shares of Company Common Stock under its Stock
Repurchase Program. The Company Common Stock, bought by the Company at
prevailing market prices at the time of the repurchase, was purchased and
retired at a cost of $311.
Business Combinations
Subsequent to October 24, 1998 and through December 4, 1998, the Company
completed two business combinations which were accounted for under the purchase
method for an aggregate purchase price of $7,240 consisting entirely of cash.
The total assets related to these acquisitions were approximately $10,095,
including intangible assets of approximately $6,852. The results of these
acquisitions will be included in the Company's results from their respective
dates of acquisition.
Expansion of the Credit Facility
On December 2, 1998, the Company received commitments from certain lending
institutions of the Credit Facility syndicate to increase the amount available
for borrowing under the facility to $200,000 and to amend certain terms and
conditions of the Credit Facility (the "Amended Credit Facility"). The Amended
Credit Facility will be underwritten and agented by Bankers Trust, contains
essentially the same terms and conditions as the Credit Facility and will mature
on June 10, 2003. The increased funds available under the Amended Credit
Facility will primarily be used for acquisition purposes.
Page 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. When used in this Report, the words
"anticipate," "believe," "estimate," "intend," "may," "will," "expect" and
similar expressions as they relate to Workflow Management, Inc. (the "Company"
or "Workflow Management") or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements, which are made only as of the dates
hereof.
Introduction
Workflow Management is a leading graphic arts company providing a "one-stop
shop" e-commerce solution for businesses to purchase all office consumables via
the Internet. The Company employs over 2,100 people in North America, including
a 500-person salesforce. Workflow Management has manufacturing operations
located throughout the United States and Canada which produce envelopes,
commercial printing products and documents. The Company seeks to become a
consolidator in the highly fragmented graphic arts industry. The Company
currently has 18 manufacturing facilities in seven states and five Canadian
provinces, 27 distribution centers, eight print-on-demand centers and 60 sales
offices. Prior to the consummation of the U.S. Office Products Company ("U.S.
Office Products") strategic restructuring plan (the "Strategic Restructuring
Plan")on June 9, 1998 (the "Distribution Date"), the Company's subsidiaries
(other than those acquired since the Distribution Date) comprised the Print
Management Division of U.S. Office Products.
The following discussion should be read in conjunction with the consolidated
historical financial statements, including the related notes thereto, appearing
elsewhere in this Quarterly Report on Form 10-Q, as well as the Company's
audited consolidated financial statements, and notes thereto, for the fiscal
year ended April 25, 1998 ("Fiscal 1998") included in the Company's Annual
Report on Form 10-K.
Consolidated Results of Operations
Three Months Ended October 24, 1998 Compared to Three Months Ended
October 25, 1997
Consolidated revenues increased 1.4%, from $88.9 million for the three months
ended October 25, 1997, to $90.1 million for the three months ended October 24,
1998. This increase was primarily due to increased envelope and document sales
resulting from sales to two large new customer accounts that were secured during
Fiscal 1998, internal growth in the Company's distribution division through
increased sales to existing customers and the inclusion of Astrid Offset Corp.
("Astrid"), acquired on February 26, 1998, in the consolidated results of the
Company for the entire three months ended October 24, 1998.
International revenues decreased 8.6%, from $32.7 million, or 36.8% of
consolidated revenues, for the three months ended October 25, 1997, to $29.9
million, or 33.2% of consolidated revenues, for the three months ended October
24, 1998. International revenues consisted exclusively of revenues generated in
Canada. This decrease was entirely due to a decline in the Canadian exchange
rate during the three months ended October 24, 1998. International revenues,
when stated in the local currency, increased $249,000 (Canadian) or 0.5% for the
three months ended October 24, 1998 when compared to the three months ended
October 25, 1997.
Page 13
Gross profit increased 7.8%, from $23.3 million, or 26.2% of revenues, for the
three months ended October 25, 1997, to $25.1 million, or 27.9% of revenues, for
the three months ended October 24, 1998. The increase in gross profit was
primarily due to the additional gross profit generated from the two new customer
accounts and the inclusion of Astrid in the consolidated results of the Company
for the entire period. The increase in gross profit as a percentage of revenues
was due to Astrid generating gross profit at a higher percentage of revenues
than was historically recognized by the Company and increased gross profit
percentages on commercial printing and envelope revenues.
Selling, general and administrative expenses increased 5.7%, from $18.4 million,
or 20.7% of revenues, for the three months ended October 25, 1997, to $19.5
million, or 21.6% of revenues, for the three months ended October 24, 1998. The
increase in selling, general and administrative expenses was primarily due to
the inclusion of Astrid in the results of the Company for the entire period and
the additional corporate overhead that was incurred during the three months
ended October 24, 1998 as a result of the Company operating as a stand-alone
public entity following its spin-off from U.S. Office Products. This increase
was partially offset by the benefits resulting from significant headcount
reductions and cost saving measures employed by the Company during the end of
Fiscal 1998. The increase in selling, general and administrative expenses as a
percentage of sales during the three months ended October 24, 1998 was primarily
due to the additional corporate overhead incurred during the period.
Amortization expense increased $82,000 from $51,000 for the three months ended
October 25, 1997, to $133,000 for the three months ended October 24, 1998. This
increase was due exclusively to the inclusion of Astrid for the entire three
month period ended October 24, 1998.
Interest expense, net of interest income, increased 32.6%, from $559,000 for the
three months ended October 25, 1997, to $741,000 for the three months ended
October 24, 1998. This increase in net interest expense was due to the increased
level of debt outstanding during the three months ended October 24, 1998 as a
result of the Company securing a $150.0 million revolving credit facility which
was used in part to pay off the Company's debt to U.S. Office Products at the
Distribution Date and subsequent borrowings.
Other income decreased from $69,000 for the three months ended October 25, 1997,
to $65,000 for the three months ended October 24, 1998. Other income primarily
represents the net of gains and/or losses on sales of equipment and
miscellaneous other income and expense items.
Provision for income taxes increased from $1.8 million for the three months
ended October 25, 1997 to $2.1 million for the three months ended October 24,
1998, reflecting effective income tax rates of 40.7% and 44.0%, respectively.
During both periods, the effective income tax rates reflect the recording of tax
provisions at the federal statutory rate of 35.0%, plus appropriate state and
local taxes. In addition, the effective tax rates were increased to reflect the
incurrence of non-deductible goodwill amortization expense resulting from
acquisition of Astrid.
Six Months Ended October 24, 1998 Compared to Six Months Ended
October 25, 1997
Consolidated revenues increased 5.6%, from $171.0 million for the six months
ended October 25, 1997, to $180.6 million for the six months ended October 24,
1998. This increase was primarily due to the inclusion of FMI Graphics, Inc. and
Astrid (the "Fiscal 1998 Purchased Companies") in the consolidated results of
the Company for the entire six months ended October 24, 1998 and increased
envelope and document sales resulting from sales to two large new customer
accounts that were secured during Fiscal 1998.
International revenues decreased 6.6%, from $63.6 million, or 37.2% of
consolidated revenues, for the six months ended October 25, 1997, to $59.4
million, or 32.9% of consolidated revenues, for the six months ended October 24,
1998. International revenues consisted exclusively of revenues generated in
Canada. This decrease was entirely due to a decline in the Canadian exchange
rate during the six months ended October 24, 1998. International revenues, when
stated in the local currency, increased $727,000 (Canadian) or 0.8% for the six
months ended October 24, 1998 when compared to the six months ended October 25,
1997.
Page 14
Gross profit increased 9.9%, from $45.2 million, or 26.4% of revenues, for the
six months ended October 25, 1997, to $49.7 million, or 27.5% of revenues, for
the six months ended October 24, 1998. The increase in gross profit was
primarily due to the inclusion of the Fiscal 1998 Purchased Companies in the
consolidated results of the Company for the entire period and the additional
gross profit generated from the two new customer accounts. The increase in gross
profit as a percentage of revenues was due to the Fiscal 1998 Purchased
Companies generating gross profit at a higher percentage of revenues than was
historically recognized by the Company.
Selling, general and administrative expenses increased 9.2%, from $35.3 million,
or 20.6% of revenues, for the six months ended October 25, 1997, to $38.5
million, or 21.3% of revenues, for the six months ended October 24, 1998. The
increase in selling, general and administrative expenses was primarily due to
the inclusion of the Fiscal 1998 Purchased Companies in the results of the
Company for the entire period and the additional corporate overhead that was
incurred during the six months ended October 24, 1998 as a result of the Company
operating as a stand-alone public entity following its spin-off from U.S. Office
Products. This increase was partially offset by the benefits resulting from
significant headcount reductions and cost saving measures employed by the
Company during the end of Fiscal 1998. The increase in selling, general and
administrative expenses as a percentage of sales during the six months ended
October 24, 1998 was primarily due to the additional corporate overhead incurred
during the period.
Amortization expense increased $166,000 from $100,000 for the six months ended
October 25, 1997, to $266,000 for the six months ended October 24, 1998. This
increase was due exclusively to the inclusion of the Fiscal 1998 Purchased
Companies for the entire six month period ended October 24, 1998.
The Company incurred expenses of approximately $3.8 million during the six
months ended October 24, 1998 associated with U.S. Office Products' Strategic
Restructuring Plan. Under Generally Accepted Accounting Principles, the Company
was required to record a one-time, non-cash expense of approximately $3.0
million with a corresponding contribution to capital relating to the tender of
stock options by Workflow Management employees in U.S. Office Products' equity
tender offer at the Distribution Date. As a result of the Distribution, the
Company also incurred an additional $750,000 in transaction costs during the six
months ended October 24, 1998 relating to the Strategic Restructuring Plan for
legal, accounting and financial advisory services and various other fees.
Interest expense, net of interest income, increased 70.0%, from $1.1 million for
the six months ended October 25, 1997, to $1.9 million for the six months ended
October 24, 1998. This increase in net interest expense was due to the increased
level of debt outstanding during the six months ended October 24, 1998 as a
result of the Company securing a $150.0 million revolving credit facility which
was used in part to pay off the Company's debt to U.S. Office Products at the
Distribution Date.
Other income decreased from $167,000 for the six months ended October 25, 1997,
to $47,000 for the six months ended October 24, 1998. Other income primarily
represents the net of gains and/or losses on sales of equipment and
miscellaneous other income and expense items.
Provision for income taxes decreased from $3.6 million for the six months ended
October 25, 1997 to $2.3 million for the six months ended October 24, 1998,
reflecting effective income tax rates of 40.5% and 44.0%, respectively. During
both periods, the effective income tax rates reflect the recording of tax
provisions at the federal statutory rate of 35.0%, plus appropriate state and
local taxes. In addition, the effective tax rates were increased to reflect the
incurrence of non-deductible goodwill amortization expense resulting from
acquisition of the Fiscal 1998 Purchased Companies.
Page 15
Liquidity and Capital Resources
At October 24, 1998, the Company had cash of $1.1 million and working capital of
$55.6 million. The Company's capitalization, defined as the sum of long-term
debt and stockholders' equity, at October 24, 1998, was approximately $116.2
million.
Workflow Management uses a centralized approach to cash management and the
financing of its operations. As a result, minimal amounts of cash and cash
equivalents are typically on hand as any excess cash would be used to pay down
the Company's revolving credit facility. Cash at October 24, 1998, primarily
represented customer collections and in-transit cash sweeps from the Company's
subsidiaries at the end of the quarter.
Workflow Management's anticipated capital expenditures budget for the next
twelve months is approximately $8.0 million for new equipment and maintenance,
including any costs associated with compliance testing and technical upgrades to
ensure that the Company's computer systems are Year 2000 compliant. See "--Year
2000 Issue" discussion.
During the six months ended October 24, 1998, net cash provided by operating
activities was $13.0 million. Net cash used in investing activities was $13.7
million, including $13.2 million used for acquisitions, $3.3 million used for
capital expenditures and $1.0 million used for a deposit on machinery which were
all partially offset by the collection of $3.7 million in notes receivable from
employees. Net cash provided by financing activities was $1.6 million, which
included $40.6 million in net borrowings by the Company and an $8.5 million
capital contribution by U.S. Office Products which were partially offset by
$36.1 million of cash paid to U.S. Office Products under its Strategic
Restructuring Plan, $6.4 million paid to retire the Company's common stock, $3.0
million paid in deferred financing fees and $2.0 million paid for the issuance
of stock subscription notes receivable.
During the six months ended October 25, 1997, net cash provided by operating
activities was $1.6 million. Net cash used in investing activities was $3.2
million, including $2.5 million used for capital expenditures. Net cash used in
financing activities totaled $123,000.
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 32.9% of the Company's
total net sales for the six months ended October 24, 1998. As a result, Workflow
Management is subject to certain risks inherent in conducting business
internationally, including fluctuations in currency exchange rates. Changes in
exchange rates may have a significant effect on the Company's business,
financial condition and results of operations.
During the six months ended October 24, 1998, the Canadian dollar weakened
against the U.S. dollar ("USD"). The Canadian exchange rate declined from
approximately $0.70 USD at April 25, 1998 to $0.65 USD at October 24, 1998. This
resulted in a reduction in stockholders' equity, through a foreign currency
translation adjustment, of approximately $2.2 million, reflecting the impact of
the declining exchange rate on the Company's investments in its Canadian
subsidiary. The Company is currently reviewing certain hedge transaction options
to mitigate the effect of currency fluctuations.
As a result of the provisions of Section 355 of the Internal Revenue Code of
1986, as amended, and certain tax contribution agreements entered into by the
Company in connection with the Distribution, the Company may be subject to
constraints on its ability to issue additional shares of the Company's common
stock in certain transactions for two years following the Distribution Date. In
particular, if 50% or more, by vote or value, of the capital stock of Workflow
Management is acquired by one or more persons acting pursuant to a plan or
series of transactions that includes the Distribution, Workflow Management will
suffer significant tax liability. The Company will evaluate any significant
future issuance of capital stock to avoid the imposition of such tax liability.
Page 16
The Strategic Restructuring Plan called for an allocation of $45.6 million of
debt by U.S. Office Products to Workflow Management at the Distribution Date.
This allocation resulted in the forgiveness of $8.5 million of debt during the
six months ended October 24, 1998, which was reflected in the Company's
financial statements as a contribution of capital by U.S. Office Products.
The Company entered into a secured $150.0 million revolving credit facility (the
"Credit Facility") underwritten and agented by Bankers Trust Company on June 9,
1998. The Credit Facility matures on June 10, 2003 and is secured by
substantially all assets of the Company. The Credit Facility is subject to terms
and conditions typical of a credit facility of such type and size, including
certain financial covenants. Interest rate options are available to the Company
conditioned on certain leverage tests. The maximum rate of interest is the prime
rate from time to time in effect. Workflow Management expects that the Credit
Facility is adequate to fund working capital and capital expenditure needs. The
Credit Facility is also available to fund the cash portion of future
acquisitions, subject to the maintenance of bank covenants.
On December 2, 1998, the Company received commitments from certain lending
institutions of the Credit Facility syndicate to increase the amount available
for borrowing under the facility to $200.0 million and to amend certain terms
and conditions of the Credit Facility (the "Amended Credit Facility"). The
Amended Credit Facility will be underwritten and agented by Bankers Trust,
contains essentially the same terms and conditions as the Credit Facility and
will mature on June 10, 2003. The increased funds available under the Amended
Credit Facility will primarily be used for acquisition purposes.
The Company repaid the $45.6 million of debt owed to U.S. Office Products and
other third party creditors with funds available under the Credit Facility
during the six months ended October 24, 1998. At December 4, 1998, the Company
had approximately $62.0 million outstanding under the Credit Facility, at an
annual interest rate of approximately 7.46%, and $88.0 million available under
the Credit Facility for acquisitions and working capital purposes.
The Company anticipates that its current cash on hand, cash flow from operations
and additional financing available under the Credit Facility will be sufficient
to meet the Company's liquidity requirements for its operations for the next
twelve months. However, the Company intends to pursue acquisitions, which are
expected to be funded through cash, stock or a combination thereof. There can be
no assurance that additional sources of financing will not be required during
the next twelve months or thereafter.
Fluctuations in Quarterly Results of Operations
Workflow Management's envelope business is subject to seasonal influences from
year-end mailings. As the Company continues to complete acquisitions, it may
become subject to other seasonal influences if the businesses it acquires are
seasonal. Quarterly results also may be materially affected by the timing of
acquisitions, the timing and magnitude of costs related to such acquisitions,
variations in the prices paid by the Company for the products it sells, the mix
of products sold and general economic conditions. Moreover, the operating
margins of companies acquired may differ substantially from those of Workflow
Management, which could contribute to further fluctuation in its quarterly
operating results. Therefore, results for any quarter are not necessarily
indicative of the results that the Company may achieve for any subsequent fiscal
quarter or for a full fiscal year.
Inflation
The Company does not believe that inflation has had a material impact on its
results of operations during the six month periods ended October 24, 1998 and
October 25, 1997, respectively.
Page 17
New Accounting Pronouncements
Reporting Comprehensive Income. In June 1997, FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Workflow Management has adopted
SFAS No. 130 for the fiscal year ending April 24, 1999.
Disclosures about Segments of an Enterprise and Related Information. In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for reporting
information about operating segments in annual and interim financial statements.
Operating segments are determined consistent with the way management organizes
and evaluates financial information internally for making decisions and
assessing performance. It also requires related disclosures about products,
geographic areas and major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS No. 131 for
the year ending April 24, 1999. Implementation of this disclosure standard will
not affect the Company's financial position or results of operations.
Year 2000 Issue
Many existing computer programs were designed and developed without considering
the impact of the upcoming change in the century and consequently use only two
digits to identify a year in the date field. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000 (the
"Year 2000 Issue" or "Year 2000").
The Company has commenced a process to assess the potential impact of the Year
2000 Issue on its systems and the systems of major vendors, major customers and
third party service providers, and to remediate any non-compliance of its
systems. With respect to its internal systems, the potential Year 2000 effects
extend beyond the Company's information technology systems to its manufacturing
systems and physical facilities. The Company has implemented a three step
approach to address Year 2000 which involves the following phases: (i)
Identification, (ii) Assessment and (iii) Remediation and Testing. The Company
has created a committee chaired by the Company's internal audit staff and made
up of Company key management and in-house management information systems (MIS)
personnel to monitor progress of the Year 2000 Issue, including particularly
assessment and remediation.
The Company has completed the identification phase of the Year 2000 Issue and
has inventoried all internal systems, including information technology (IT) and
non-IT systems, hardware, software and its proprietary software systems and
services material to its operations that are potentially susceptible to Year
2000 problems. The Company has also prepared plans for assessing compliance and
for completing remediation. In addition, the Company has prepared and
distributed vendor, supplier and customer compliance surveys to ascertain the
Year 2000 readiness of its key suppliers and business partners.
The assessment phase involves analyzing the internal systems, vendors, suppliers
and customers recognized in the identification phase, assessing which of the
Company's systems and key business partners are Year 2000 compliant, and
planning for remediation of non-compliant systems. The Company has evaluated
almost all of the Company's internal systems and has received a majority of the
third-party compliance surveys distributed in the identification phase. The
Company expects to complete the assessment phase within the next three months.
Page 18
Based upon the assessment phase, the Company believes that the majority of its
non-IT systems, including the Company's printing presses, security systems, time
clocks and manufacturing facilities, are Year 2000 compliant. The Company
believes that there are no significant uses of micro-processing oriented
equipment within its manufacturing systems and that the cost to address any
components deemed to be non-compliant is not material. Based on information
provided by vendors and suppliers in the compliance surveys, the Company also
believes that the vast majority of its vendors and customers who have responded
to the Company's compliance surveys will be Year 2000 compliant by the end of
June 1999. The Company intends to work directly with its key vendors, suppliers
and distributors to avoid any business interruptions due to the Year 2000 Issue.
For major third-parties with known Year 2000 compliance issues, contingency
plans are being developed and are expected to be implemented by March 1999.
In the remediation and testing phase, the Company intends to deploy plans for
elimination, upgrade, replacement or modification of non-compliant systems and
test compliance. The Company completed the Year 2000 conversion and testing of
its proprietary distribution software system (known as GetSmart) in November
1998 and intends to have its other proprietary software system and related
services (known as Informa) Year 2000 compliant by the end of calendar 1998. The
Company is in various stages of completion regarding the remediation and testing
phase for its other systems but believes that all of its systems will be Year
2000 compliant by June 1999.
If the Company and its customers, suppliers and vendors were not Year 2000
compliant by January 1, 2000, the most reasonably likely worst case scenario
would be a temporary shutdown or cessation of distribution or manufacturing
operations at one or more of the Company's facilities and a temporary inability
of the Company to timely process customer orders and deliver products to
customers. Any such shutdown could have a material adverse effect on the
Company's results of operations, liquidity and financial position. The Company's
systems are not now uniform across all operations and the Company does not
expect uniformity by the end of 1999. Therefore, the Company does not anticipate
system wide failures as a result of the Year 2000 Issue. The Company's
individual business units and Year 2000 committees are currently identifying and
considering various contingency options, including identification of alternate
suppliers, vendors and service providers, and manual alternatives to systems
operations, which would allow the Company to minimize the risks of any
unresolved Year 2000 problems on their operations and to minimize the effect of
any unforeseen Year 2000 failures.
The Company estimates that it will incur approximately $6.0 million of
incremental expenses and capitalized costs in connection with the Year 2000
Issue, of which approximately $5.0 million has been incurred to date. The
Company anticipates funding future Year 2000 Issue costs with funds available
from operations and the Company's credit facility with its senior lenders.
While costs associated with the Year 2000 Issue may be material in one or more
of the Company's fiscal quarters, the Company does not believe that the Year
2000 Issue will have a material adverse effect on the long-term results of
operations, liquidity or financial position of the Company. However, no
assurance can be given that unforeseen circumstances will not arise as the
Company addresses the Year 2000 Issue. Specific factors that may cause the
Company to experience unanticipated problems with respect to the Year 2000 Issue
include the availability and cost of adequately trained personnel, the ability
to locate and correct all affected computer code, and the timing and success of
Year 2000 efforts by the Company's customers, suppliers and vendors.
Page 19
Factors Affecting the Company's Business
Risks Associated with Acquisitions
One of the Company's strategies is to increase its revenues and the markets it
serves through the acquisition of additional graphic arts businesses. There can
be no assurance that suitable candidates for acquisitions can be identified or,
if suitable candidates are identified, that acquisitions can be completed on
acceptable terms, if at all.
Integration of acquired companies may involve a number of special risks that
could have a material adverse effect on the Company's operations and financial
performance, including adverse short-term effects on its reported operating
results (including those adverse short-term effects caused by severance payments
to employees of acquired companies, restructuring charges associated with the
acquisitions and other expenses associated with a change of control, as well as
non-recurring acquisition costs including accounting and legal fees, investment
banking fees, recognition of transaction-related obligations and various other
acquisition-related costs); diversion of management's attention; difficulties
with retention, hiring and training of key personnel; risks associated with
unanticipated problems or legal liabilities; and amortization of acquired
intangible assets. Furthermore, although Workflow Management conducts due
diligence and generally requires representations, warranties and
indemnifications from the former owners of acquired companies, there can be no
assurance that such owners will have accurately represented the financial and
operating conditions of their companies. If an acquired company's financial or
operating results were misrepresented, the acquisition could have a material
adverse effect on the results of operations and financial condition of Workflow
Management.
Workflow Management may in the future seek to finance its acquisitions by using
shares of Company Common Stock. If the Company Common Stock does not maintain a
sufficient market value, if the price of Company Common Stock is highly
volatile, or if potential acquisition candidates are otherwise unwilling to
accept Company Common Stock as part of the consideration for the sale of their
businesses, Workflow Management may be required to use more of its cash
resources or more borrowed funds in order to initiate and maintain its
acquisition program. If Workflow Management does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity offerings. The Company does not anticipate
utilizing Company Common Stock for acquisition purposes during the current
fiscal year.
Approximately $22.8 million, or 14.2% of the Company's total assets as of
October 24, 1998, represents intangible assets, the significant majority of
which is goodwill. Goodwill represents the excess of cost over the fair market
value of net assets acquired in business combinations accounted for under the
purchase method. The Company amortizes goodwill on a straight line method over a
period of 40 years with the amount amortized in a particular period constituting
a non-cash expense that reduces the Company's net income. The Company will be
required to periodically evaluate the recoverability of goodwill by reviewing
the anticipated undiscounted future cash flows from the operations of the
acquired companies and comparing such cash flows to the carrying value of the
associated goodwill. If goodwill becomes impaired, Workflow Management would be
required to write down the carrying value of the goodwill and incur a related
charge to its income. A reduction in net income resulting from the amortization
or write down of goodwill could have a material and adverse impact upon the
market price of the Company Common Stock.
Page 20
Risks Associated with Canadian Operations
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 32.9% and 36.2% of the
Company's total net sales in the six months ended October 24, 1998 and the
fiscal year ended April 25, 1998, respectively. As a result, Workflow Management
is subject to certain risks inherent in conducting business internationally,
including fluctuations in currency exchange rates. Workflow Management is also
subject to risks associated with the imposition of protective legislation and
regulations, including those resulting from trade or foreign policy. In
addition, because of the Company's Canadian operations, significant revenues and
expenses are denominated in Canadian dollars. Changes in exchange rates may have
a significant effect on the Company's business, financial condition and results
of operations. Workflow Management does not currently engage in currency hedging
transactions.
For additional risk factors, refer to the Company's Annual Report on Form 10-K
for the year ended April 25, 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
NONE
Page 21
PART II - OTHER INFORMATION
Item 5. Other Information.
Under the terms of the agreement entered into between the Company
and U.S. Office Products in connection with the Strategic
Restructuring Plan (the "Distribution Agreement"), the Company is
obligated, subject to a maximum obligation of $1.75 million, to
indemnify U.S. Office Products for certain liabilities incurred by
U.S. Office Products prior to the Distribution, including
liabilities under federal securities laws (the "Indemnification
Obligation"). This Indemnification Obligation is reduced by any
insurance proceeds actually recovered in respect of the Indemnification
Obligation and is shared on a pro rata basis with the other three
divisions of U.S. Office Products that were spun-off from U.S. Office
Products in connection with the Strategic Restructuring Plan.
U.S. Office Products has been named a defendant in various class
action lawsuits. These lawsuits generally allege violations of federal
securities laws by U.S. Office Products and other named defendants
during the months preceding the Strategic Restructuring Plan. The
Company has not received any notice or claim from U.S. Office Products
alleging that these lawsuits are within the scope of the
Indemnification Obligation, but the Company believes that certain
liabilities and costs associated with these lawsuits (up to a maximum
of $1.75 million) are likely to be subject to the Company's
Indemnification Obligation. Nevertheless, the Company does not
presently anticipate that the Indemnification Obligation will have a
material adverse effect on the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Form Secured Promissory Note for Executive Stock Loan Program
10.2 Form Unsecured Promissory Note for Executive Stock Loan
Program
10.3 Form Pledge Agreement for Executive Stock Loan Program
10.4 Stock Purchase Agreement dated October 5, 1998 between
Workflow Management, Inc., Penn-Grover Envelope Corp. and
Stuart Grover.
10.5 Stock Purchase Agreement dated October 21, 1998 between SFI of
Delaware, LLC, Danziger Graphics, Inc., H. Roy Danziger, Inc.,
Robert Danziger and Roy Danziger.
10.6 Stock Purchase Agreement dated November 30, 1998
between SFI of Delaware, LLC, Caltar, Inc., Jack Tarr
and the Tarr Family Trust.
10.7 Stock Purchase Agreement dated November 30, 1998
between Workflow Management, Inc., Direct Pro LLC,
Robert Sands, TLG Realty LLC, Richard Schlanger and
Robert Fishbein.
11.1 Statement regarding computation of net income per share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the period covered by this report, the Company filed a Current
Report on Form 8-K on October 20, 1998 that announced the Company's
acquisition of Penn-Grover Envelope Corp.
Page 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORKFLOW MANAGEMENT, INC.
December 8, 1998 By: /s/ Thomas B. D'Agostino
- ---------------- ------------------------
Date Thomas B. D'Agostino
Chairman of the Board, Chief Executive Officer, President,
Director (Principal Executive Officer)
December 8, 1998 By: /s/ Steven R. Gibson
- ---------------- --------------------
Date Steven R. Gibson
Vice President, Chief Financial Officer, Treasurer,
Secretary (Principal Financial Officer and Principal
Accounting Officer)
Page 23