AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
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REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WORKFLOW MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 2759 06-1507104
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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3701 EAST VIRGINIA BEACH BLVD.
NORFOLK, VIRGINIA 23502
(757) 455-8001
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
MICHAEL B. FELDMAN
CHIEF FINANCIAL OFFICER
WORKFLOW MANAGEMENT, INC.
3701 EAST VIRGINIA BEACH BLVD.
NORFOLK, VIRGINIA 23502
(757) 455-8001
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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COPIES TO:
GEORGE P. STAMAS, ESQ. LELAND E. HUTCHINSON, ESQ.
WILMER, CUTLER & PICKERING JOHN L. MACCARTHY, ESQ.
2445 M STREET, N.W. WINSTON & STRAWN
WASHINGTON, D.C. 20037 35 W. WACKER DRIVE
TELEPHONE NO. (202) 663-6000 CHICAGO, ILLINOIS 60601
FACSIMILE NO. (202) 663-6363 TELEPHONE NO. (312) 558-5600
FACSIMILE NO. (312) 558-5700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF SECURITIES AGGREGATE REGISTRATION
TO BE REGISTERED OFFERING PRICE FEE (1)
Common Stock, par value $0.001 per share.......................................... $50,000,000 $14,750
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) of the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED MARCH 6, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[LOGO] WORKFLOW MANAGEMENT, INC.
SHARES
COMMON STOCK
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All of the shares of Common Stock offered hereby are being sold by
Workflow Management, Inc. (the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $ and $
per share. See "Underwriting" for information relating to the method of
determining the initial public offering price. The Company has applied for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"WORK."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
Per Share.................................................. $ $ $
Total(3)................................................... $ $ $
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional shares of Common Stock solely to cover over-allotments,
if any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
------------------------
The Common Stock is offered by the Underwriters, as stated herein, subject
to receipt and acceptance by
them and subject to their right to reject any order in whole or in part. It is
expected that delivery of such shares will be made through the offices of
BancAmerica Robertson Stephens, San Francisco, California, on or about
, 1998.
BANCAMERICA ROBERTSON STEPHENS
MORGAN STANLEY DEAN WITTER
SANDS BROTHERS & CO., LTD.
The date of this Prospectus is , 1998
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
PAGE
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Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 5
The Spin-Offs From U.S. Office Products.................................................................... 14
Use of Proceeds............................................................................................ 17
Dividend Policy............................................................................................ 17
Dilution................................................................................................... 17
Capitalization............................................................................................. 18
Selected Financial Data.................................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 21
Business................................................................................................... 27
Management................................................................................................. 36
Related Party Transactions................................................................................. 42
Principal Stockholders..................................................................................... 43
Description of Capital Stock............................................................................... 45
Shares Eligible for Future Sale............................................................................ 47
Underwriting............................................................................................... 48
Validity of Common Stock................................................................................... 49
Experts.................................................................................................... 49
Additional Information..................................................................................... 49
Index to Financial Statements.............................................................................. F-1
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The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements examined by its independent public
accountants and quarterly reports containing unaudited consolidated financial
statements for each of the first three quarters of each fiscal year.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
"IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
GETSMART-TM-, INFORMA-TM- AND IMAGENET-TM- ARE TRADEMARKS OF THE COMPANY.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY AND NOTES THERETO, THE UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS OF THE COMPANY AND THE NOTES THERETO, AND THE FINANCIAL STATEMENTS OF
CERTAIN COMPANIES ACQUIRED BY THE COMPANY AND THE NOTES THERETO, APPEARING
ELSEWHERE IN THE PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECT," AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN
THIS PROSPECTUS ASSUMES: (I) CONSUMMATION OF THE TRANSACTIONS DESCRIBED UNDER
"THE SPIN-OFFS FROM U.S. OFFICE PRODUCTS;" (II) AN INITIAL PUBLIC OFFERING PRICE
OF $ PER SHARE OF COMMON STOCK (REPRESENTING THE MIDPOINT OF THE PRICE
RANGE); AND (III) THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED. UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES TO THE COMPANY
(OR WORKFLOW MANAGEMENT) INCLUDE SFI CORP. ("SFI"); HANO DOCUMENT PRINTERS, INC.
("HANO"); UNITED ENVELOPE CO., INC. ("UE"), REX ENVELOPE CO., INC. ("REX"),
HUXLEY ENVELOPE CORPORATION ("HUXLEY"), POCONO ENVELOPE CORPORATION ("POCONO")
(UE, REX, HUXLEY AND POCONO ARE COLLECTIVELY REFERRED TO HEREAFTER AS "UNITED");
DATA BUSINESS FORMS LIMITED ("DBF"); AND ASTRID OFFSET CORPORATION ("ASTRID"),
WHOLLY-OWNED DIRECT OR INDIRECT SUBSIDIARIES OF THE COMPANY, AS WELL AS ALL
PREDECESSORS THEREOF.
THE COMPANY
Workflow Management, Inc. (the "Company" or "Workflow Management") is an
integrated graphic arts company providing documents, envelopes and commercial
printing to more than 22,000 businesses in the United States and Canada. The
Company also offers various print and facilities management services, which
allow customers to realize cost savings by outsourcing non-core operations, as
well as design services and workflow analysis. Drawing on its position in the
industry and its experience in completing acquisitions, the Company seeks to
become a leading consolidator in the highly-fragmented graphic arts industry. In
the last ten years, the Company's senior management team successfully completed
the acquisition of 16 companies for Standard Forms, Inc., the predecessor to
SFI. Since the acquisition of SFI and Hano by the Print Management Division of
U.S. Office Products Company ("U.S. Office Products") in January 1997, that same
senior management team has continued its acquisition strategy by successfully
buying six additional companies. As a result, the Company has grown its revenues
and operating income from approximately $115.1 million and $6.7 million,
respectively, for the year ended December 31, 1996, to annualized revenues and
operating income of approximately $358.1 million and $21.7 million,
respectively, for the twelve months ended October 25, 1997, on a pro forma basis
(which is double the six-month revenues and income for the six months ended
October 25, 1997). The Company currently has over 2,000 employees and has 17
manufacturing facilities in seven states and five Canadian Provinces, 26
distribution centers, eight print-on-demand centers and 59 sales offices.
Workflow Management intends to continue to pursue its aggressive acquisition
strategy to extend its geographic scope and market penetration, and to increase
sales to existing customers by cross-selling documents, envelopes and commercial
printing.
Workflow Management offers a full range of printed products which are either
manufactured by the Company or procured from one of the Company's more than
3,500 vendors. The Company's product line includes: (i) documents, such as
custom invoices, purchase orders, checks and labels; (ii) envelopes, including
specialty envelopes for uses such as credit card solicitations, annual reports,
direct mail and airline tickets; and (iii) commercial printing, such as product
and corporate brochures, personalized direct mail literature, catalogs,
directories and digital imaging. The Company's manufacturing base, combined with
its extensive vendor network and distribution capability, gives the Company
broad flexibility to meet customers' demands for printed products. For the six
months ended October 25,
1997, approximately 56.2% of its revenues were derived from products purchased
by the Company for distribution, and 43.8% were derived from products
manufactured by the Company.
Many of the Company's customers are attempting to reduce their overhead and
direct costs by focusing on core competencies and by outsourcing non-core
operations to specialists. The Company provides customers with print management
services that are designed to control the costs of procuring, storing and using
graphic arts in their business operations. As an outsourcing specialist for
print management services, Workflow Management enables its customers to reduce
costs and improve control by soliciting competitive bids, establishing more
efficient inventory levels and order quantities, and consolidating requisitions,
production and deliveries. The Company also performs design and procurement
services for its customers. In order to meet growing demand, Workflow Management
plans to continue to expand its product lines and services, and to promote its
print and facilities management services, which allow customers to outsource the
management of print products.
The Company believes its proprietary technology and systems are central to
its ability to capitalize effectively on industry outsourcing trends and provide
it with a significant competitive advantage. The Company has developed its
GetSmart and Informa transaction and information systems to support these
services and the Company's sales of print products. The GetSmart system provides
transaction, reporting and control capabilities to the Company and its customers
in the United States. The Informa system supports requisition, distribution and
imaging services with a control database and a variety of customer interfaces
for its customers in Canada, including the Imagenet Document Manager that
provides access via the world wide web. In addition, using the GetSmart and the
Informa systems, the Company has the flexibility to integrate future
acquisitions and increase its customer base rapidly and seamlessly. In addition,
with its technology platform, Workflow Management believes that it is able to
position itself as a premier technology deployer, thus increasing the Company's
attractiveness to potential acquisition targets.
The document, envelope and commercial printing industries that comprise the
graphic arts businesses are highly fragmented, and the Company believes they are
ripe for consolidation. According to the Document Management Industries
Association, the market for documents was approximately $12.7 billion in 1996,
up from $11.1 billion in 1993. The U.S. market for envelopes, as measured by the
Envelope Manufacturers Association, was approximately $3.0 billion in 1996,
compared to $2.7 billion in 1993. According to the Printing Industries of
America trade association, the general commercial segment of the U.S. printing
industry shipped more than $88 billion of products in 1996, an increase of 8%
over 1995. The Company believes there are 15,000 print distribution companies
operating in the documents industry. Within the envelope industry, management
believes there are approximately 200 envelope manufacturers in the United
States, and a much larger number of regional and local custom and specialty
envelope printers and distributors. The commercial printing industry is composed
of over 25,000 printing plants, 70% of which have fewer than 10 employees.
The Company intends to capitalize on consolidation opportunities primarily
in three business lines of the North American graphic arts industry: United
States printed products, United States envelopes and Canadian printed products.
The Company will focus on acquisition opportunities that complement and complete
its product line and service offerings. The Company believes that the greatest
consolidation opportunities exist among distribution companies in the graphic
arts industry. The Company plans to offer the customers of its newly acquired
companies its GetSmart and Informa systems and its full offering of print and
facilities management services. Workflow Management also plans to grow
internally by developing new products, cross-selling the full complement of the
Company's products and services to the customers of its subsidiaries (which
previously had limited product offerings) and implementing its transaction and
information systems throughout the Company.
Workflow Management was incorporated in the state of Delaware on February
13, 1998. The principal executive offices of the Company are located at 3701
East Virginia Beach Blvd., Norfolk, Virginia 23502, although the Company intends
to relocate these offices to Palm Beach, Florida prior to this Offering.
Workflow Management's telephone number is (757) 455-8001.
2
WORKFLOW DISTRIBUTION
Prior to the completion of this Offering, all of the shares of
Workflow Management Common Stock owned by U.S. Office Products will be
distributed to the stockholders of U.S. Office Products in a spin-off (the
"Workflow Distribution"). U.S. Office Products is spinning off Workflow
Management as part of a strategic restructuring plan (the "Strategic
Restructuring Plan") in which U.S. Office Products is spinning off the shares of
the four companies (the "Spin-Off Companies") that conduct U.S. Office Products'
current print management, technology solutions, educational supplies and
corporate travel services businesses. (These spin-offs are collectively referred
to as the "Distributions.") See "The Spin-Offs From U.S. Office Products."
THE OFFERING
Common Stock offered hereby............................................... shares(1)
Common Stock to be outstanding after the Offering......................... shares(1)(2)
Use of proceeds........................................................... For working capital and
general corporate
purposes, including
future acquisitions
Nasdaq National Market Symbol............................................. WORK
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(1) Excludes shares of Common Stock subject to the Underwriters'
over-allotment option.
(2) Excludes shares of Common Stock issuable upon the exercise of stock options
exercisable upon consummation of the Workflow Distribution. See
"Management--1998 Stock Incentive Plan."
3
SUMMARY FINANCIAL DATA (1)
(In thousands, except per share data)
FISCAL
YEAR ENDED
APRIL 26,
FOUR MONTHS ----------
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------- APRIL 30,
1992 1993 1994 1995(2) 1996 1997
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STATEMENT OF INCOME DATA:
Revenues........................................ $ 80,731 $ 118,965 $ 154,193 $ 309,426 $ 114,099 $ 334,220
Cost of revenues................................ 57,054 85,956 114,885 234,959 82,998 243,179
--------- ---------- ---------- ---------- ------------ ----------
Gross profit.................................... 23,677 33,009 39,308 74,467 31,101 91,041
Selling, general and administrative expenses.... 20,800 27,266 32,020 62,012 22,485 70,949
Non-recurring acquisition costs................. 5,006
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Operating income................................ 2,877 5,743 7,288 12,455 8,616 15,086
Interest expense................................ 904 1,267 2,048 5,370 1,676 4,827
Interest income................................. (81) (116) (18) (25)
Other (income) expense.......................... 366 461 186 62 (151) 632
--------- ---------- ---------- ---------- ------------ ----------
Income before provision for (benefit from)
income taxes and extraordinary items.......... 1,688 4,131 5,054 7,023 7,109 9,652
Provision for (benefit from) income taxes(4).... 153 259 379 (33) 1,351 3,591
--------- ---------- ---------- ---------- ------------ ----------
Income before extraordinary items............... 1,535 3,872 4,675 7,056 5,758 6,061
Extraordinary items(5).......................... 700 798
--------- ---------- ---------- ---------- ------------ ----------
Net income...................................... $ 1,535 $ 3,872 $ 4,675 $ 6,356 $ 5,758 $ 5,263
--------- ---------- ---------- ---------- ------------ ----------
--------- ---------- ---------- ---------- ------------ ----------
Pro forma net income per share(6)...............
Weighted average shares outstanding(7)..........
OTHER DATA:
EBITDA..........................................
SIX MONTHS ENDED
--------------------------------------------------
PRO PRO
PRO FORMA FORMA
FORMA OCTOBER 26, OCTOBER 25, OCTOBER 26, OCTOBER 25,
1997(3) 1996 1997 1996(3) 1997(3)
---------- ----------- ----------- ----------- -----------
STATEMENT OF INCOME DATA:
Revenues........................................ $ 349,174 $ 161,798 $ 173,347 $ 169,179 $ 178,086
Cost of revenues................................ 251,314 117,563 127,547 121,584 129,712
---------- ----------- ----------- ----------- -----------
Gross profit.................................... 97,860 44,235 45,800 47,595 48,374
Selling, general and administrative expenses.... 75,508 33,500 35,983 36,007 37,471
Non-recurring acquisition costs.................
---------- ----------- ----------- ----------- -----------
Operating income................................ 22,352 10,735 9,817 11,588 10,903
Interest expense................................ 3,578 2,250 1,390 1,789 1,789
Interest income.................................
Other (income) expense.......................... 408 622 (166) 518 (294)
---------- ----------- ----------- ----------- -----------
Income before provision for (benefit from)
income taxes and extraordinary items.......... 18,366 7,863 8,593 9,281 9,408
Provision for (benefit from) income taxes(4).... 7,532 1,708 3,480 3,806 3,858
---------- ----------- ----------- ----------- -----------
Income before extraordinary items............... $ 10,834 6,155 5,113 $ 5,475 $ 5,550
---------- ----------- -----------
---------- ----------- -----------
Extraordinary items(5)..........................
----------- -----------
Net income...................................... $ 6,155 $ 5,113
----------- -----------
----------- -----------
Pro forma net income per share(6)............... $ 0.11 $ 0.06 $ 0.06
---------- ----------- -----------
---------- ----------- -----------
Weighted average shares outstanding(7).......... 95,963 95,963 95,963
OTHER DATA:
EBITDA..........................................
DECEMBER 31,
------------------------------------------ APRIL 30,
1992 1993 1994 1995 1996
--------- --------- --------- --------- ----------
BALANCE SHEET DATA:
Working capital....................................................... $ 6,005 $ 7,264 $ 8,583 $ 20,127 $ 23,378
Total assets.......................................................... 26,543 48,374 51,357 120,630 117,949
Short-term debt payable to U.S. Office Products.......................
Long-term debt, less current portion.................................. 4,632 9,632 7,355 28,812 28,108
Long-term debt payable to U.S. Office Products........................
Stockholders' equity.................................................. 7,459 11,675 12,889 24,719 29,120
OCTOBER 25, 1997
--------------------------------------
PRO FORMA
APRIL 26, PRO AS ADJUSTED
1997 ACTUAL FORMA(8) (9)
---------- ---------- ---------- --------------
BALANCE SHEET DATA:
Working capital....................................................... $ 17,009 $ 22,677 $ 46,735 $
Total assets.......................................................... 125,108 129,703 144,405
Short-term debt payable to U.S. Office Products....................... 23,622 22,239
Long-term debt, less current portion.................................. 6,034 5,660 40,463
Long-term debt payable to U.S. Office Products........................ 20,891 21,955
Stockholders' equity.................................................. 27,549 34,719 58,448
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(1) The historical financial information of the businesses that were acquired in
business combinations accounted for under the pooling-of-interests method
(the "Pooled Companies") has been combined on a historical cost basis in
accordance with generally accepted accounting principles ("GAAP") to present
this financial data as if the Pooled Companies had always been members of
the same operating group. The financial information of the businesses
acquired in the business combinations accounted for under the purchase
method (the "Purchased Companies") is included from the dates of their
respective acquisitions. The pro forma financial information reflects
completed acquisitions through March 5, 1998.
(2) The results for the year ended December 31, 1995 include the results of DBF,
one of the Pooled Companies, from its date of incorporation on February 8,
1995.
(3) Gives effect to the Distribution and the purchase acquisitions completed by
the Company since May 1, 1996 as if all such transactions had been made on
May 1, 1996. The pro forma statement of income data are not necessarily
indicative of the operating results that would have been achieved had these
events actually then occurred and should not be construed as representative
of future operating results.
(4) Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.
(5) Extraordinary items represent the losses associated with the early
terminations of credit facilities at one Pooled Company, net of the related
income tax benefits.
(6) Pro forma net income per share is pro forma income before extraordinary
items per share.
(7) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 26, 1997 and for the six months ended October 25,
1997 and October 26, 1996, see Note 2(j) of Notes to Pro Forma Combined
Financial Statements included herein.
(8) Gives effect to the Distribution and purchase acquisition of Astrid as if
such transactions had been made on October 25, 1997. The pro forma balance
sheet data are not necessarily indicative of the financial position that
would have been achieved had these events actually then occurred and should
not be construed as representative of future financial position.
(9) Adjusted to give effect to the sale by the Company of shares of Common
Stock offered hereby at the assumed initial public offering price and the
anticipated application of the estimated net proceeds therefrom. See "Use of
Proceeds."
4
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING SHARES OF COMMON STOCK OFFERED HEREBY (THE "OFFERING").
POTENTIAL VOLATILITY OF STOCK PRICE AND OTHER RISKS ASSOCIATED WITH SHARES
ELIGIBLE FOR IMMEDIATE SALE
As a result of the Workflow Distribution, stockholders of U.S. Office
Products are acquiring shares of Common Stock that are freely tradeable at
the time of this Offering without restrictions or further registration under the
Securities Act, except that any shares held by "affiliates" of Workflow
Management within the meaning of the Securities Act will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act ("Rule
144"). Because the Workflow Distribution is being made to existing stockholders
of U.S. Office Products who have not made an affirmative decision to invest in
the Company's Common Stock there can be no assurance that some or all of these
stockholders will not sell the shares of Common Stock that they receive into the
market shortly after the Workflow Distribution. In addition, U.S. Office
Products is included in certain broad-based indices tracked by a number of
investment companies and other institutional investors, and such investors can
be expected to sell the shares of Common Stock they receive in the Workflow
Distribution shortly thereafter.
A "when-issued" trading market in the Common Stock may develop immediately
upon the Workflow Distribution. Such trading could increase the volatility of,
and adversely affect the market price of, the Common Stock.
In addition, upon completion of this Offering and the Workflow Distribution,
the Company will have outstanding (i) shares of Common Stock issued in this
Offering, all of which will be freely tradeable unless held by affiliates of the
Company, and (ii) immediately exercisable options to acquire approximately
shares of Common Stock. The Company intends to register the shares of
Common Stock reserved for issuance pursuant to its stock incentive plan as soon
as practicable following the closing of this Offering. Following this Offering
and the Workflow Distribution, in view of the large number of shares
freely-tradeable and available for immediate sale, the market for the Company's
Common Stock could be highly volatile and the trading price of the Common Stock
could be adversely affected. See "Shares Eligible for Future Sale."
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
The Company is the result of the consolidation by U.S. Office Products of
nine separate companies engaged in the graphic arts industry. The operations of
Workflow Management as a stand-alone, consolidated entity may place significant
demands on the Company's management, operational and technical resources. Prior
to the Workflow Distribution, certain general and administrative functions
relating to the Company's business (such as legal and accounting) were handled
by U.S. Office Products. The Company's future performance will depend on its
ability to function as a stand-alone entity, to finance and manage expanding
operations, and to adapt its information systems to changes in its business. In
addition, Workflow Management will not be able to rely on the purchasing power
of U.S. Office Products and, therefore, may not be able to obtain the same
volume discounts for products and services that are available to U.S. Office
Products. As a result, the Company's expenses may be higher than when it was a
part of U.S. Office Products, and the Company may experience disruptions it
would not encounter as a part of U.S. Office Products. Furthermore, the
financial information included herein may not necessarily reflect the results of
operations and financial condition of Workflow Management had it been a
separate, stand-alone entity during the periods presented, or is indicative of
future results of operations and financial condition of the Company.
5
DEPENDENCE UPON ACQUISITIONS FOR FUTURE GROWTH
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. Prior to the Workflow Distribution, the Company's
acquisitions were completed with substantial business, legal and accounting
assistance from U.S. Office Products' and the acquisitions were primarily paid
for with U.S. Office Products' common stock. The pace of the Company's
acquisition program may be adversely affected by the absence of U.S. Office
Products' support for the acquisitions. In addition, Workflow Management intends
to use Common Stock to pay for certain of its acquisitions and, therefore, if
the owners of potential acquisition candidates are not willing to receive shares
of Common Stock of the Company in exchange for their businesses, the Company's
acquisition program could be adversely affected. Moreover, the consolidation of
the North American graphic arts industry has reduced the number of larger
companies available for sale, which could lead to higher prices being paid for
the acquisition of the remaining domestic, independent companies. In addition,
Workflow Management is subject to limitations on the number of shares of capital
stock it can issue without jeopardizing the tax-free treatment of the Workflow
Distribution. Limitations on the Company's ability to issue shares of capital
stock could also adversely affect the Company's acquisition strategy. See
"--Possible Limitations on Issuances of Common Stock," "--Material Amount of
Goodwill" and "--Inability to Use Pooling of Interests Accounting."
RISKS RELATED TO INTEGRATION OF ACQUISITIONS
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.
RISKS RELATED TO ACQUISITION FINANCING; ADDITIONAL DILUTION
Workflow Management currently intends to finance its future acquisitions by
using shares of its Common Stock, cash, borrowed funds or a combination thereof.
If the Common Stock does not maintain a sufficient market value, if the price of
Common Stock is highly volatile, or if potential acquisition candidates are
otherwise unwilling to accept 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. However, the use of equity offerings
in connection with the Workflow Distribution will also be subject to certain
limitations on the number of shares that Workflow Management can issue without
jeopardizing the tax-free treatment of the Workflow Distribution. See
"--Possible Limitations on Issuances of Common Stock." Prior to the Workflow
Distribution, Workflow Management was not responsible for obtaining external
sources of funding. There can be no assurance that Workflow
6
Management, as a stand-alone company, will be able to obtain such financing if
and when it is needed or that any such financing will be available on terms it
deems acceptable.
Upon completion of this Offering and the Workflow Distribution, the Company
will have authorized but unissued and unreserved shares of Common Stock,
which (subject to the rules and regulations of federal and state securities
laws, limitations under U.S. federal income tax laws and the rules of the Nasdaq
Stock Market) the Company will be able to issue in order to finance acquisitions
without obtaining stockholder approval for such issuances. Existing stockholders
may suffer dilution if the Company uses Common Stock as consideration for future
acquisitions. Moreover, the issuance of additional shares of Common Stock may
have a negative impact on earnings per share and may negatively impact the
market price of the Common Stock.
MATERIAL AMOUNT OF GOODWILL
Approximately $13.3 million, or 9.2%, of the Company's pro forma total
assets as of October 25, 1997, 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, the
Company 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 Common Stock.
INABILITY TO USE POOLING OF INTERESTS ACCOUNTING
Generally accepted accounting principles require that an entity be
autonomous for a period of two years before it is eligible to complete business
combinations under the pooling-of-interests method. As a result of the Company
being a wholly-owned subsidiary of U.S. Office Products prior to the Workflow
Distribution, the Company will be unable to satisfy this criteria for a period
of two years following the Workflow Distribution. Therefore, the Company will be
precluded from completing business combinations under the pooling-of-interests
method for a period of two years and any business combinations completed by the
Company during such period will be accounted for under the purchase method
resulting in the recording of goodwill.
ATTRACTION AND RETENTION OF PERSONNEL
The Company's senior management team does not have experience operating a
public company. Timothy L. Tabor is expected to resign as Executive Vice
President of U.S. Office Products Print Management Division and Executive Vice
President and Chief Operating Officer of SFI and Hano prior to the Workflow
Distribution. Mr. Tabor will join the Board of Directors of the Company
following the closing date of this Offering. Therefore, the Company is
recruiting a qualified individual to perform the functions associated with these
positions. There can be no assurance that the Company will be successful in
hiring, integrating or retaining such an individual.
The Company's operations depend on the continued efforts of Thomas B.
D'Agostino, its Chief Executive Officer, its other executive officers and the
senior management of certain of its subsidiaries. Furthermore, the Company's
operations will likely depend on the senior management of certain of the
companies that may be acquired in the future. If any of these people becomes
unable to continue in his or her present role, or if the Company is unable to
attract and retain other skilled employees, its business
7
could be adversely affected. The Company does not have key man life insurance
covering any of its executive officers or other members of senior management of
its subsidiaries.
In addition, Jonathan J. Ledecky will serve as a director of Workflow
Management and is expected to provide services to Workflow Management after the
Workflow Distribution pursuant to an agreement entered into between Mr. Ledecky
and U.S. Office Products which provides that the Company and the other Spin-Off
Companies will succeed to certain rights of, and obligations under, such
agreement following the Workflow Distribution. See "Management--Director
Compensation and Other Arrangements." Mr. Ledecky will also serve as a director
of each of the other Spin-Off Companies, and is the director or an officer of
other public companies. Mr. Ledecky may be unable to devote substantial time to
the activities of Workflow Management.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS; RISKS OF INFRINGEMENT
The Company's success and ability to compete depends in part upon its
proprietary technology, trademarks and copyrights. Workflow Management regards
the software underlying its GetSmart, Imagenet and Informa systems as
proprietary, and relies primarily on trade secrets, copyright and trademark law
to protect these proprietary rights. The Company has registered some of its
trademarks, and has no patents issued nor applications pending. Existing trade
secret and copyright laws afford the Company only limited protection.
Unauthorized parties may attempt to copy aspects of the Company's software or to
obtain and use information that Workflow Management regards as proprietary.
Policing unauthorized use of the Company's software is difficult. Workflow
Management generally enters into confidentiality and assignment agreements with
its employees, and generally controls access to and distribution of its
software, documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's services or technology without authorization, or to
develop similar services or technology independently. Workflow Management is not
aware that any of its software, trademarks or other proprietary rights infringe
the proprietary rights of third parties. However, there can be no assurance that
third parties will not assert infringement claims against Workflow Management in
the future. Any such claims, with or without merit, can be time consuming and
expensive to defend and may require the Company to enter into royalty or
licensing agreements or cease the alleged infringing activities. See
"Business--Print Management."
EFFECTS OF CHANGES IN DEMAND FOR DOCUMENTS; CYCLICALITY
Historically, the Company's operating results have depended heavily on sales
of documents. For the fiscal year ended April 26, 1997, and for the six months
ended October 25, 1997, sales of documents accounted for approximately 56% and
51%, respectively, of the Company's net sales. Workflow Management anticipates
that document sales will continue to account for a significant percentage of the
Company's sales for the foreseeable future. An important element of the
Company's business strategy is to continue its growth in document sales by
continuing to acquire other document companies, hiring experienced sales
representatives, attracting new customers and increasing sales to existing
customers. The overall document industry has not grown in the last few years,
although demand for certain products, such as laser forms, pressure-sensitive
labels, form/label combinations and single-part cut-sheet mailers has increased.
Accordingly, for Workflow Management to continue its growth in document sales,
it must increase its market share and respond to changes in demand in the
overall document industry. No assurance can be given that Workflow Management
will be successful in increasing its market share or responding to shifts in
demand. The failure by the Company to do so could have a material adverse effect
on its business, financial condition or results of operations.
In addition, the document industry historically has been affected by general
economic and industry cycles that have materially and adversely affected
distributors and manufacturers of documents. No assurance can be given as to the
effect of a continuation of, or change in, such business cycles on the Company's
business, financial condition or results of operations. The delay or inability
of Workflow
8
Management to respond to changing economic cycles could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Business Strategy."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 36% of the Company's
total net sales in the fiscal year ended April 26, 1997. 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.
UNITED STATES POSTAL RATES; ALTERNATIVE DELIVERY MEDIA
The Company's operating results depend, to a significant extent, on sales of
envelopes. Sales of envelopes accounted for approximately 31% of the Company's
net sales for the fiscal year ended April 26, 1997. Because the great majority
of envelopes used in the United States are sent through the mail, postal rates
are a significant factor affecting the growth of envelope usage. Historically,
increases in postal rates, relative to changes in the cost of alternative
delivery means and/or advertising media, have resulted in temporary reductions
in the growth rate of mail sent. For example, third class postal rates increased
approximately 50% and 14% in 1991 and 1995, respectively, contributing to a
substantial leveling off in the growth rate of third class mail sent during the
periods following such increases. If postal rates increase, mail volume could
decline, which could reduce revenue from the Company's sale of envelopes and
reduce the Company's earnings and cash flow.
In addition, alternative delivery media may affect the demand for envelopes.
As the current trend towards usage of the Internet and other electronic media by
consumers for such purposes as paying utility and credit card bills grows,
Workflow Management expects the demand for envelopes for such purposes to
decline. Although management believes that overall demand for envelopes,
particularly the custom and specialty envelopes Workflow Management focuses on,
will continue to grow at rates comparable to recent historical levels,
competition from alternative media may reduce demand for envelopes, and the
Company's revenues from the sale of envelopes may decrease, which could reduce
the Company's earnings and cash flow.
IMPACT OF FLUCTUATIONS IN PAPER PRICES
Paper prices represent a substantial portion of the cost of producing
documents, envelopes and commercial printing distributed and manufactured by
Workflow Management. Accordingly, prevailing paper prices can have a significant
impact on the Company's sales. The timing of increases or decreases in paper
prices and any subsequent change in prices charged to the Company's customers
could have a material adverse effect on the Company's revenues and gross
margins. Although Workflow Management has generally been able to pass increases
in paper costs on to its customers, for competitive or other reasons, the
Company cannot offer any assurance that it will be able to pass all or a portion
of any future paper price or other cost increases on to its customers. If
Workflow Management were unable to pass on these costs, profit margins would
decrease, which could reduce earnings and cash flow. Moreover, an increase in
the Company's prices for the products it distributes, resulting from a
pass-through of increased paper costs, could reduce the volume of units sold by
the Company, and decrease the Company's revenues.
9
Due to the significance of paper to most of the Company's products, Workflow
Management is dependent upon the availability of paper. During periods of tight
paper supply, many paper producers allocate shipments of paper based on the
historical purchase levels of customers. There can be no assurance that the
Company's document and envelope businesses would not be materially adversely
affected if either Workflow Management or its vendors experienced difficulty in
obtaining adequate quantities of paper in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
UNIONIZED WORKFORCE
Approximately 31% of the Company's employees in the United States and
approximately 8% of the Company's employees in Canada are covered by collective
bargaining agreements. There can be no assurance that strikes or work stoppages
will not occur in the future. Strikes or work stoppages and the resultant
adverse impact on the Company's relationship with its customers could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company's acquisition strategy could be
adversely affected because of its union status for a variety of reasons,
including without limitation, incompatibility with a target's existing unions
and reluctance of non-union targets to become affiliated with a union based
company. See "Business--Employees."
COSTS AND RISKS OF LOSS RELATING TO ENVIRONMENTAL REGULATION
The Company's operations and real property are subject to U.S. and Canadian
federal, state, provincial and local environmental laws and regulations,
including those governing the use, storage, treatment, transportation and
disposal of solid and hazardous materials, the emission or discharge of such
materials into the environment, and the remediation of contamination associated
with such disposal or emissions (collectively "Environmental Laws"). Workflow
Management utilizes certain hazardous and non-hazardous materials such as
washes, inks, alcohol-based products, fountain solution, photographic fixer and
developer solutions, machine and hydraulic oils and solvents. While management
believes that the Company's current operations are in substantial compliance
with Environmental Laws, there can be no assurance that all potential
environmental liabilities have been identified, or that future uses, conditions
or legal requirements (including, without limitation, those that may result from
future acts or omissions or changes in applicable Environmental Laws) will not
materially adversely affect the Company's business or operations. See
"Business-Environmental."
POTENTIAL LIABILITY FOR TAXES RELATED TO THE DISTRIBUTIONS
In connection with the Distributions, U.S. Office Products will enter into a
tax allocation agreement with the Spin-Off Companies (the "Tax Allocation
Agreement"), which will provide that the Spin-Off Companies will jointly and
severally indemnify U.S. Office Products for any losses associated with taxes
related to the Distributions ("Distribution Taxes") if an action or omission (an
"Adverse Tax Act") of any of the Spin-Off Companies materially contributes to a
final determination that any or all of the Distributions are taxable. Workflow
Management will also enter into a tax indemnification agreement with the other
Spin-Off Companies (the "Tax Indemnification Agreement"), under which the
Spin-Off Company that is responsible for the Adverse Tax Act will indemnify the
other Spin-Off Companies for any liability to indemnify U.S. Office Products
under the Tax Allocation Agreement. As a consequence, Workflow Management will
be liable for any Distribution Taxes resulting from any Adverse Tax Act by
Workflow Management and liable (subject to indemnification by the other Spin-Off
Companies) for any Distribution Taxes resulting from an Adverse Tax Act by the
other Spin-Off Companies. If there is a final determination that any or all of
the Distributions are taxable and it is determined that there has not been an
Adverse Tax Act by either U.S. Office Products or any of the Spin-Off Companies,
U.S. Office Products and each of the Spin-Off Companies will be liable for its
pro rata portion of the Distribution Taxes based on the value of each company's
common stock after the Distributions. As a result, the Company could become
liable for a
10
pro rata portion of any Distribution Taxes with respect to not only the Workflow
Distribution but also any of the other Distributions. See "The Spin-Offs From
U.S. Office Products--Tax Allocation Agreement and Tax Indemnification
Agreement" for a detailed discussion of the Tax Allocation Agreement and the Tax
Indemnification Agreement.
POSSIBLE LIMITATIONS ON ISSUANCES OF COMMON STOCK
U.S. Office Products has sought to structure the Workflow Distribution to
qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code of
1986, as amended (the "Code"). Assuming the Workflow Distribution qualifies as a
tax-free spin-off and is not taxable under Section 355(e) of the Code, no gain
or loss will be recognized by either U.S. Office Products or the holders of U.S.
Office Products' common stock (except with respect to cash received in lieu of
fractional shares) solely as a result of the Workflow Distribution or receipt of
Common Stock in connection with the Workflow Distribution. As a result of
certain U.S. federal income tax limitations under Section 355 of the Code, the
amount of capital stock of the Company that can be issued in connection with the
Workflow Distribution without jeopardizing the tax-free treatment of the
Workflow Distribution may be limited to 20% of the amount of capital stock of
the Company that would be issued and outstanding after giving effect to all such
issuances, if such issuances are deemed to occur prior to the Workflow
Distribution. It is unclear whether Common Stock in the Company that is acquired
pursuant to immediately exercisable options counts toward this 20% limitation.
Section 355(e) of the Code, which was added in 1997, provides generally that
a company that distributes shares in a spin-off that is otherwise tax-free will
incur material U.S. federal income tax if 50% or more, by vote or value, of the
capital stock of the company making the spin-off or of the spun-off entity is
acquired by one or more persons, acting pursuant to a plan or series of related
transactions that includes the spin-off. Stock acquired by persons acting
pursuant to plan or arrangement, and stock acquired by certain related persons,
is aggregated in determining whether this 50% test is met. There is a rebuttable
presumption that any acquisition occurring two years before or after the
spin-off is pursuant to a plan that includes the spin-off. Such presumption may
be rebutted by establishing that the spin-off and such acquisition are not
pursuant to a plan or series of related transactions. As a result of the
provisions of Section 355(e), there can be no assurance that issuances of
capital stock by the Company, including issuances in connection with an
acquisition of another business by the Company, will not create a tax liability
for U.S. Office Products. The Company has entered into the Tax Allocation
Agreement and Tax Indemnification Agreement pursuant to which the Company will
be liable to U.S. Office Products and the other Spin-Off Companies if its
actions result in a tax liability related to the spin-off. See "--Potential
Liability for Taxes Related to the Distributions," and "The Spin-Offs from U.S.
Office Products--Tax Allocation Agreement and Tax Indemnification Agreement."
These limitations could adversely affect the pace of the Company's
acquisition program and its ability to issue Common Stock for other purposes,
including equity offerings.
EMERGING ALTERNATIVE TECHNOLOGIES
Electronic forms and electronic data interchange technologies have recently
been introduced. There can be no assurance that such emerging technologies will
not have a material adverse effect on the Company or on the document industry.
Over the last several years, the document industry has undergone a transition as
a result of the increased usage of desk top publishing and laser printer
technology, which has led to a decreased demand for certain document products.
The continuation of such technological changes, or the development of other
trends that decrease demand for documents, could have a material adverse effect
on the Company's business, financial condition or results of operations.
11
COMPETITION
Workflow Management competes for retail sales of documents and envelopes
against other independent distributors and against manufacturers' direct sales
organizations. In commercial printing, the Company also competes with
manufacturers' direct sales organizations, independent brokers, advertising
agencies and design firms. The principal competitive factors in the graphic arts
industry are price, quality, selection, services, production capacity, delivery
and customer support.
Although Workflow Management often competes with smaller businesses, it also
competes against the largest competitors in the North American documents
industry, such as Moore Corporation Ltd., Reynolds & Reynolds Company, Standard
Register Company and Wallace Computer Services, Inc., and the largest
competitors in the U.S. envelope industry, such as Mail-Well, Westvaco and
Tension Envelope Company. The largest competitors for commercial printing
include direct sales organizations of Graphic Industries, Inc., R. R. Donnelley
& Sons, Quebecor, Inc. and World Color Press, Inc. Most of these competitors
have substantially greater financial resources than the Company.
NO DIVIDENDS
Workflow Management does not expect to pay cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
DILUTION
Purchasers of Common Stock in this Offering will sustain a substantial and
immediate dilution of $ per share, based on the assumed initial public
offering price. In addition, the exercise of outstanding stock options after
this Offering could have a further dilutive effect. See "Dilution."
ABSENCE OF PUBLIC MARKET
Prior to the Workflow Distribution and this Offering, it is anticipated that
there will be no public market for the Common Stock. The initial public offering
price of the Common Stock offered hereby will be determined through negotiations
among the Company and the Underwriters and may not be indicative of the market
price for the Common Stock after this Offering. See "Underwriting." The trading
price of the Common Stock could be subject to wide fluctuations in response to
variations in the Company's quarterly operating results, changes in earnings
estimates by analysts, conditions in the Company's businesses, general market or
economic conditions or other factors. In addition, in recent years the stock
market has experienced extreme price and volume fluctuations. These fluctuations
have had a substantial effect on the market prices for many emerging growth
companies, often unrelated to the operating performance of the specific
companies. Such market fluctuations could have a material adverse effect on the
market price of the Common Stock. See "--Potential Volatility of Stock Price and
Other Risks Associated With Shares Eligible for Immediate Sale."
RISK OF LOSS FROM POSSIBLE FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE
Several of the Company's operating companies are using billing or other
software that is not year 2000 compliant. The Company has not quantified the
costs of addressing its year 2000 issues, but it believes that the necessary
adaptations of these systems can be completed in the next 18 months, and that
the costs of achieving compliance will not be material. If the Company is unable
to make the necessary adaptations on a timely basis, or if the costs are greater
than expected, the consequences of untimely resolution or the costs of complying
could have an adverse impact on the Company's business or operations.
12
THE SPIN-OFFS FROM U.S. OFFICE PRODUCTS
Prior to the Offering, Workflow Management has been a wholly-owned
subsidiary of U.S. Office Products. At the time of this Offering, Workflow
Management will hold all of the business and assets of, and will be responsible
for substantially all of the liabilities associated with, U.S. Office Products
Print Management Division. Prior to the completion of this Offering all of the
shares of Workflow Management's Common Stock owned by U.S. Office
Products will be distributed to the stockholders of U.S. Office Products in a
spin-off. U.S. Office Products is spinning off Workflow Management as part of
the Strategic Restructuring Plan in which U.S. Office Products is spinning off
the shares of the Spin-Off Companies that conduct U.S. Office Products' current
print management, technology solutions, educational supplies and corporate
travel services businesses. At the same time as the Distributions, U.S. Office
Products is repurchasing approximately 28% of its issued and outstanding common
stock in a tender offer and is selling equity securities to an affiliate (the
"Investor") of an investment fund managed by Clayton, Dubilier & Rice, Inc.
("CD&R"), which will give CD&R a 24.9% equity interest in U.S. Office Products
(but no interest in the Spin-Off Companies).
In connection with the Workflow Distribution, Workflow Management is
entering into a series of agreements with U.S. Office Products and the other
Spin-Off Companies to provide mechanisms for an orderly transition and to define
certain relationships among Workflow Management, U.S. Office Products and the
other Spin-Off Companies after the Workflow Distribution. These agreements are:
a distribution agreement (the "Distribution Agreement") among Workflow
Management, U.S. Office Products and the other Spin-Off Companies; the Tax
Allocation Agreement among Workflow Management, U.S. Office Products and the
other Spin-Off Companies; an employee benefits agreement (the "Employee Benefits
Agreement") among Workflow Management, U.S. Office Products and the other
Spin-Off Companies; and the Tax Indemnification Agreement among Workflow
Management and the other Spin-Off Companies. The terms of the Distribution
Agreement, Tax Allocation Agreement, Tax Indemnification Agreement and Employee
Benefits Agreement have not yet been finally determined. Those terms will be
agreed to while Workflow Management is a wholly-owned subsidiary of U.S. Office
Products. In addition, the agreement between U.S. Office Products and CD&R
relating to CD&R's investment in U.S. Office Products (the "Investment
Agreement") specifies certain terms of these agreements and provides that they
are subject to CD&R's reasonable approval. Therefore, they will not be the
result of arms'-length negotiations between independent parties.
Although the terms of the Distribution Agreement, Tax Allocation Agreement,
Tax Indemnification Agreement and Employee Benefits Agreement have not been
finally determined, Workflow Management currently expects that the terms will
include those described below. There can be no assurance that the terms of the
Distribution Agreement, Tax Allocation Agreement, Tax Indemnification Agreement
and Employee Benefits Agreement will not be less favorable to the stockholders
of Workflow Management than the terms set out below.
DISTRIBUTION AGREEMENT
TRANSFER OF SUBSIDIARIES AND ASSETS. The Distribution Agreement is expected
to provide for the transfer from U.S. Office Products to Workflow Management of
substantially all of the equity interests in the U.S. Office Products
subsidiaries that are engaged in the business of Workflow Management. It is also
expected to provide that the recovery on any claims that U.S. Office Products
may have against the persons who sold businesses to U.S. Office Products that
will become part of Workflow Management in connection with the Workflow
Distribution pursuant to the relevant acquisition agreements (the "Workflow
Acquisition Indemnity Claims") will be allocated between U.S. Office Products
and the applicable Spin-Off Company under a formula to be determined. In
addition, to the extent that the Workflow Acquisition Indemnity Claims are
secured by the pledge of stock of U.S. Office Products and the Spin-Off
Companies that is owned by persons who sold businesses to U.S. Office Products
that will become part of Workflow
13
Management (and no previous claims have been made against such shares), the
pledged shares of Common Stock will be used, subject to final resolution of the
claim, to reimburse U.S. Office Products and the applicable Spin-Off Company for
their respective damages and expenses in accordance with the relative allocation
of recovery rights which will be determined prior to the Workflow Distribution.
DEBT. The Distribution Agreement is expected to provide that Workflow
Management will have, at the time of the Workflow Distribution, $30.0 million of
debt plus the amount of any additional debt incurred after the date of the
Investment Agreement by U.S. Office Products or Workflow Management in
connection with acquired companies that will become subsidiaries of Workflow
Management. The Company estimates that the additional debt will be approximately
$14.7 million.
ASSUMPTION OF LIABILITIES. The Distribution Agreement is expected to
allocate and provide for the assumption of financial responsibility for
liabilities (other than taxes and employee benefit matters, which will be
governed by separate agreements) among U.S. Office Products, Workflow Management
and the other Spin-Off Companies. Workflow Management will be responsible for
(i) any liabilities arising out of or in connection with the businesses
conducted by Workflow Management and/or its subsidiaries, (ii) its liabilities
under the Distribution Agreement, Tax Allocation Agreement, Tax Indemnification
Agreement, Employee Benefits Agreement and related agreements, (iii) its
liabilities for the debt described above, (iv) certain securities liabilities,
and (v) any liabilities of U.S. Office Products relating to earn-out or bonus
payments owed by U.S. Office Products in respect of Workflow Management or its
subsidiaries. In addition, the Distribution Agreement is expected to provide for
sharing of certain liabilities among some or all of the parties. Each of U.S.
Office Products, Workflow Management and the other Spin-Off Companies will bear
a portion, on a basis to be determined, of (i) any liabilities of U.S. Office
Products under the securities laws arising from events prior to the
Distributions (other than claims relating solely to a specific Spin-Off Company
or relating specifically to the continuing businesses of U.S. Office Products),
(ii) U.S. Office Products' general corporate liabilities (other than debt,
except for that specifically allocated to the Spin-Off Companies) incurred prior
to the Distributions (I.E., liabilities not related to the conduct of a
particular distributed or retained subsidiary's business), and (iii)
transactions costs (including legal, accounting, investment banking and
financial advisory) and other fees incurred by U.S. Office Products in
connection with the Strategic Restructuring Plan. U.S. Office Products estimates
that legal, financial advisory, investment banking, financing, accounting,
printing, mailing and other expenses (including the fees of U.S. Office
Products' and Spin-Off Companies' transfer agents) of the Strategic
Restructuring Plan, including the Distributions, will total approximately
$ .
The Distribution Agreement is expected to provide that each party will
indemnify and hold all of the other parties harmless from any and all
liabilities for which the former assumed liability under the Distribution
Agreement. All indemnity payments will be subject to adjustment upward or
downward to take account of tax costs or tax benefits as well as insurance
proceeds. If there are any claims made under U.S. Office Products' existing
insurance policies, the amount of any deductible or retention will be allocated
by U.S. Office Products among the claimants in a fair and reasonable manner.
OTHER PROVISIONS. The Distribution Agreement is expected to have other
customary provisions including provisions relating to mutual release, access to
information, witness services, confidentiality and alternative dispute
resolution.
TAX ALLOCATION AGREEMENT AND TAX INDEMNIFICATION AGREEMENT
The Tax Allocation Agreement will provide that each Spin-Off Company will be
responsible for its respective share of U.S. Office Products' consolidated tax
liability for the years that each such corporation was included in U.S. Office
Products' consolidated U.S. federal income tax return. The Tax Allocation
Agreement also will provide for sharing, where appropriate, of state, local and
foreign taxes attributable to periods prior to the Distributions.
14
The Tax Allocation Agreement will further provide that the Spin-Off
Companies will jointly and severally indemnify U.S. Office Products for any
Distribution Taxes assessed against U.S. Office Products if an Adverse Tax Act
of any of the Spin-Off Companies materially contributes to a final determination
that any or all of the Distributions are taxable. Workflow Management will also
enter into the Tax Indemnification Agreement with the other Spin-Off Companies
under which the Spin-Off Company that is responsible for the Adverse Tax Act
will indemnify the other Spin-Off Companies for any liability to U.S. Office
Products under the Tax Allocation Agreement. As a consequence, Workflow
Management will be liable for any Distribution Taxes resulting from any Adverse
Tax Act by Workflow Management and liable (subject to indemnification by the
other Spin-Off Companies) for any Distribution Taxes resulting from an Adverse
Tax Act by the other Spin-Off Companies. If there is a final determination that
any or all of the Distributions are taxable and it is determined that there has
not been an Adverse Tax Act by either U.S. Office Products or any of the
Spin-Off Companies, each of U.S. Office Products and the Spin-Off Companies will
be liable for its pro rata portion of such Distribution Taxes based on the value
of each company's common stock after the Distributions. As a result, Workflow
Management could become liable for a pro rata portion of any Distribution Taxes
with respect to not only the Workflow Distribution but also any other
Distribution.
U.S. Office Products and the Company will receive an opinion of Wilmer,
Cutler & Pickering, counsel to U.S. Office Products and the Company, that for
U.S. federal income tax purposes the Workflow Distribution should qualify as a
tax-free spin-off under Section 355 of the Code, and should not be taxable under
Section 355(e) of the Code. The opinion of counsel will be based on certain
assumptions and the accuracy of factual representations made by U.S. Office
Products and Workflow Management. Neither U.S. Office Products nor Workflow
Management is aware of any present facts or circumstances which should cause
such representations and assumptions to be untrue. However, the opinion of
counsel is not binding on either the IRS or the courts. A ruling has not been,
and will not be, sought from the IRS with respect to the U.S. federal income tax
consequences of the Workflow Distribution and it is possible that the IRS may
take the position that the Workflow Distribution does not qualify as a tax-free
spin-off or is taxable under Section 355(e).
EMPLOYEE BENEFITS AGREEMENT
In connection with the Distributions, U.S. Office Products expects to enter
into the Employee Benefits Agreement with the other Spin-Off Companies to
provide for an orderly transition of benefits coverage between U.S. Office
Products and the Spin-Off Companies. Pursuant to this agreement, the respective
Spin-Off Companies will retain or assume liability for employment-related claims
and severance for persons currently or previously employed by the respective
Spin-Off Companies and their subsidiaries, while U.S. Office Products and its
post-Distributions subsidiaries will retain or assume responsibility for their
current and previous employees.
The proposed Employee Benefits Agreement reflects U.S. Office Products'
expectation that each of the Spin-Off Companies will establish 401(k) plans for
their respective employees effective as of, or shortly after, the Distribution
Date and that U.S. Office Products will transfer 401(k) accounts to those plans
as soon as practicable. The proposed Employee Benefits Agreement also provides
for spinning off portions of U.S. Office Products' cafeteria plan that relate to
employees of the Spin-Off Companies (and their subsidiaries) and having those
spun-off plans assume responsibilities for claims submitted on or after the
Distributions.
15
USE OF PROCEEDS
The proceeds to the Company from the sale of the Common Stock offered
hereby, net of the estimated expenses and underwriting discounts and commissions
of this Offering, are expected to be approximately $ million ($
million if the Underwriters' over-allotment option is exercised in full),
assuming the initial public offering price. The Company will use the net
proceeds of this Offering for working capital and general corporate purposes,
including future acquisitions.
The Company expects to enter into a bank line of credit prior to the closing
of this Offering. While the Company intends to make acquisitions in the future,
it has not entered into any agreement as of the date of this Prospectus to make
any such acquisitions. Pending the described uses, any remaining net proceeds
will be invested in short-term readily marketable interest-bearing securities,
interest-bearing bank accounts, certificates of deposit, money market
securities, U.S. government securities or mortgage-backed securities.
DIVIDEND POLICY
Workflow Management does not anticipate declaring and paying cash dividends
on the Common Stock in the foreseeable future. The decision whether to apply any
legally available funds to the payment of dividends on the Common Stock will be
made by the Board of Directors of the Company from time to time in the exercise
of its business judgment, taking into account the Company's financial condition,
results of operations, existing and proposed commitments for use of the
Company's funds and other relevant factors. The Company's ability to pay
dividends may be restricted from time to time by financial covenants in its
credit agreements.
16
DILUTION
The pro forma net tangible book value of the Company as of ,
1998 was approximately $ million, or $ per share of Common Stock. Pro forma
net tangible book value per share is equal to the Company's total pro forma
tangible assets less its pro forma total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale by the
Company of shares of Common Stock offered hereby at the assumed initial
public offering price and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds," the pro forma net tangible book
value of the Company at October 25, 1997 would have been approximately $
million, or approximately $ per share. This represents an immediate increase
of $ per share in the pro forma net tangible book value to existing
stockholders and an immediate dilution of $ per share in the pro forma net
tangible book value to new investors purchasing Common Stock in this Offering.
The following table illustrates the per share dilution to new investors:
Assumed initial public offering price per share............ $
Pro forma net tangible book value per share before the
Offering............................................... $
Increase per share attributable to new investors.........
---------
Pro forma net tangible book value per share after the
Offering.................................................
---------
Dilution per share to new investors........................ $
---------
---------
The foregoing computations assume no exercise of stock options to acquire
shares of Common Stock exercisable upon consummation of the Workflow
Distribution. To the extent that shares of Common Stock are issued upon exercise
of these options, the effect would be to increase the dilution to new investors.
See "Management--1998 Stock Incentive Plan."
17
CAPITALIZATION
The following table sets forth the capitalization of Workflow Management at
October 25, 1997: (i) on an actual basis; (ii) on a pro forma basis to reflect
the Workflow Distribution, the allocation of $30.0 million of debt plus $14.7
million of additional debt of the Company and the acquisition of Astrid on
February 26, 1998; and (iii) on a pro forma as adjusted basis to give effect to
the sale by the Company of the Common Stock offered hereby and after deduction
of estimated offering expenses and underwriting discounts and commissions and
application of the net proceeds therefrom. See "Use of Proceeds." This table
should be read in conjunction with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the historical consolidated
financial statements and the pro forma combined financial statements of the
Company, and the related notes to each thereof, included elsewhere in this
Prospectus.
OCTOBER 25, 1997
--------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- --------------
(IN THOUSANDS)
Short-term debt payable to U.S. Office Products....... $ 22,239 $ -- $ --
--------- ----------- -------
--------- ----------- -------
Long-term debt, less current portion.................. 5,660 40,463
Long-term debt payable to
U.S. Office Products................................. 21,955
Stockholder's equity:
Divisional equity................................... 13,425
Preferred Stock, $0.001 par value, shares
authorized; no shares outstanding.................
Common Stock, $0.001 par value, shares
authorized, no shares actual; shares pro
forma; shares pro forma, as adjusted(1)....... 96
Cumulative translation adjustment................... 42 42
Additional paid-in capital.......................... 37,058
Retained earnings................................... 21,252 21,252
--------- ----------- -------
Total stockholders' equity........................ 34,719 58,448
--------- ----------- -------
Total capitalization............................ $ 62,334 $ 98,911 $
--------- ----------- -------
--------- ----------- -------
- ------------------------
(1) Excludes options to acquire shares of Common Stock exercisable upon
consummation of the Workflow Distribution. See "Management--1998 Stock
Incentive Plan."
18
SELECTED FINANCIAL DATA
The historical Statement of Income Data for the years ended December 31,
1994 and 1995, the four months ended April 30, 1996 and the fiscal year ended
April 26, 1997 and the Balance Sheet Data at April 30, 1996 and 1997 have been
derived from Workflow Management's consolidated financial statements that have
been audited and are included elsewhere in this Prospectus. The historical
Statement of Income Data for the years ended December 31, 1992 and 1993 and the
Balance Sheet Data at December 31, 1992, 1993, 1994 and 1995 have been derived
from unaudited consolidated financial statements which are not included
elsewhere in this Prospectus. The Selected Financial Data for the six months
ended October 26, 1996 and October 25, 1997 (except pro forma amounts) have been
derived from unaudited consolidated financial statements that appear elsewhere
in this Prospectus. These unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for the periods presented.
The pro forma financial data give effect, as applicable, to the Workflow
Distribution and the acquisitions completed by Workflow Management between May
1, 1996 and March 5, 1998 as if all such transactions had been consummated on
May 1, 1996. In addition, the pro forma information is based on available
information and certain assumptions and adjustments.
The Selected Financial Data provided herein should be read in conjunction
with the historical financial statements, including the notes thereto, the pro
forma financial information, including the notes thereto, and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
appear elsewhere in this Prospectus.
19
SELECTED FINANCIAL DATA(1)
(In thousands, except per share data)
FISCAL YEAR ENDED SIX MONTHS
ENDED
APRIL 26, -----------
FOUR MONTHS --------------------
YEAR ENDED DECEMBER 31, ENDED PRO
------------------------------------------ APRIL 30, FORMA OCTOBER 26,
1992 1993 1994 1995(2) 1996 1997 1997(3) 1996
--------- --------- --------- --------- ------------- --------- --------- -----------
STATEMENT OF INCOME DATA:
Revenues...................... $ 80,731 $ 118,965 $ 154,193 $ 309,426 $ 114,099 $ 334,220 $ 349,174 $ 161,798
Cost of revenues.............. 57,054 85,956 114,885 234,959 82,998 243,179 251,314 117,563
--------- --------- --------- --------- ------------- --------- --------- -----------
Gross profit.................. 23,677 33,009 39,308 74,467 31,101 91,041 97,860 44,235
Selling, general and
administrative expenses..... 20,800 27,266 32,020 62,012 22,485 70,949 75,508 33,500
Non-recurring acquisition
costs....................... 5,006
--------- --------- --------- --------- ------------- --------- --------- -----------
Operating income.............. 2,877 5,743 7,288 12,455 8,616 15,086 22,352 10,735
Interest expense.............. 904 1,267 2,048 5,370 1,676 4,827 3,578 2,250
Interest income............... (81) (116) (18) (25)
Other (income) expense........ 366 461 186 62 (151) 632 408 622
--------- --------- --------- --------- ------------- --------- --------- -----------
Income before provision for
(benefit from) income taxes
and extraordinary items..... 1,688 4,131 5,054 7,023 7,109 9,652 18,366 7,863
Provision for (benefit from)
income taxes(4)............. 153 259 379 (33) 1,351 3,591 7,532 1,708
--------- --------- --------- --------- ------------- --------- --------- -----------
Income before extraordinary
items....................... 1,535 3,872 4,675 7,056 5,758 6,061 $ 10,834 6,155
---------
---------
Extraordinary items(5)........ 700 798
--------- --------- --------- --------- ------------- --------- -----------
Net income.................... $ 1,535 $ 3,872 $ 4,675 $ 6,356 $ 5,758 $ 5,263 $ 6,155
--------- --------- --------- --------- ------------- --------- -----------
--------- --------- --------- --------- ------------- --------- -----------
Pro forma net income per
share(6).................... $ 0.11
---------
---------
Weighted average shares
outstanding(7).............. 95,963
OTHER DATA:
EBITDA........................
PRO PRO
FORMA FORMA
OCTOBER 25, OCTOBER 26, OCTOBER 25,
1997 1996(3) 1997(3)
----------- ----------- -----------
STATEMENT OF INCOME DATA:
Revenues...................... $ 173,347 $ 169,179 $ 178,086
Cost of revenues.............. 127,547 121,584 129,712
----------- ----------- -----------
Gross profit.................. 45,800 47,595 48,374
Selling, general and
administrative expenses..... 35,983 36,007 37,471
Non-recurring acquisition
costs.......................
----------- ----------- -----------
Operating income.............. 9,817 11,588 10,903
Interest expense.............. 1,390 1,789 1,789
Interest income...............
Other (income) expense........ (166) 518 (294)
----------- ----------- -----------
Income before provision for
(benefit from) income taxes
and extraordinary items..... 8,593 9,281 9,408
Provision for (benefit from)
income taxes(4)............. 3,480 3,806 3,858
----------- ----------- -----------
Income before extraordinary
items....................... 5,113 $ 5,475 $ 5,550
----------- -----------
----------- -----------
Extraordinary items(5)........
-----------
Net income.................... $ 5,113
-----------
-----------
Pro forma net income per
share(6).................... $ 0.06 $ 0.06
----------- -----------
----------- -----------
Weighted average shares
outstanding(7).............. 95,963 95,963
OTHER DATA:
EBITDA........................
DECEMBER 31,
------------------------------------------ APRIL 30, APRIL 26,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- ----------- -----------
BALANCE SHEET DATA:
Working capital.......................................... $ 6,005 $ 7,264 $ 8,583 $ 20,127 $ 23,378 $ 17,009
Total assets............................................. 26,543 48,374 51,357 120,630 117,949 125,108
Short-term debt payable to U.S. Office Products.......... 23,622
Long-term debt, less current portion..................... 4,632 9,632 7,355 28,812 28,108 6,034
Long-term debt payable to U.S. Office Products........... 20,891
Stockholders' equity..................................... 7,459 11,675 12,889 24,719 29,120 27,549
OCTOBER 25, 1997
---------------------------------------
PRO PRO FORMA,
ACTUAL FORMA(8) AS ADJUSTED (9)
--------- ----------- ---------------
BALANCE SHEET DATA:
Working capital.......................................... $ 22,677 $ 46,735 $
Total assets............................................. 129,703 144,405
Short-term debt payable to U.S. Office Products.......... 22,239
Long-term debt, less current portion..................... 5,660 40,463
Long-term debt payable to U.S. Office Products........... 21,955
Stockholders' equity..................................... 34,719 58,448
- ------------------------
(1) The historical financial information of the Pooled Companies has been
combined on a historical cost basis in accordance with GAAP to present this
financial data as if the Pooled Companies had always been members of the
same operating group. The financial information of the Purchased Companies
is included from the dates of their respective acquisitions. The pro forma
financial information reflects completed acquisitions through March 5, 1998.
(2) The results for the year ended December 31, 1995 include the results of DBF,
one of the Pooled Companies, from its date of incorporation on February 8,
1995.
(3) Gives effect to the Distribution and the acquisitions completed by the
Company since May 1, 1996 as if all such transactions had been made on May
1, 1996. The pro forma statement of income data are not necessarily
indicative of the operating results that would have been achieved had these
events actually then occurred and should not be construed as representative
of future operating results.
(4) Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.
(5) Extraordinary items represent the losses associated with the early
terminations of credit facilities at one Pooled Company, net of the related
income tax benefits.
(6) Pro forma net income per share is pro forma income before extraordinary
items per share.
(7) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 26, 1997 and for the six months ended October 25,
1997 and October 26, 1996, see Note 2(j) of Notes to Pro Forma Combined
Financial Statements included herein.
(8) Gives effect to the Distribution and the purchase acquisition of Astrid as
if such transactions had been made on October 25, 1997. The pro forma
balance sheet data are not necessarily indicative of the financial position
that would have been achieved had these events actually then occurred and
should not be construed as representative of future financial position.
(9) Adjusted to give effect to the sale by the Company of shares of Common
Stock offered hereby at the assumed initial public offering price and the
anticipated application of the estimated net proceeds therefrom. See"Use of
Proceeds."
20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECT," AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS," AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS PROSPECTUS.
OVERVIEW
Workflow Management is an integrated graphic arts company providing
documents, envelopes and commercial printing to more than 22,000 businesses in
the United States and Canada. U.S. Office Products acquired SFI and a related
company, Hano, on January 24, 1997. On April 25, 1997, U.S. Office Products
acquired United. On April 26, 1997, U.S. Office Products acquired DBF. On
February 26, 1998, U.S. Office Products acquired Astrid. Upon consummation of
the transactions described under the caption "The Spin-Offs From U.S. Office
Products," these companies will become direct or indirect wholly-owned
subsidiaries of Workflow Management.
Workflow Management's consolidated financial statements give retroactive
effect to the seven business combinations accounted for under the
pooling-of-interests method during the period from January 1997 through April
1997 (the "Pooled Companies") and include the results of the two companies
acquired in business combinations accounted for under the purchase method, each
from its acquisition date. Prior to their respective dates of acquisition by
U.S. Office Products, the Pooled Companies reported results for years ended on
December 31. Upon acquisition by U.S. Office Products and effective for the
fiscal year ended April 26, 1997 ("Fiscal 1997"), the Pooled Companies changed
their year-ends from December 31 to conform with U.S. Office Products' fiscal
year, which ends on the last Saturday of April. The following discussion should
be read in conjunction with Workflow Management's consolidated financial
statements and related notes thereto and pro forma financial statements and
related notes thereto appearing elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for
the years ended December 31, 1994 and 1995, the fiscal year ended April 26, 1997
and for the six months ended October 26, 1996 and October 25, 1997, as well as
for the fiscal year ended April 26, 1997 and for the six months ended October
26, 1996 and October 25, 1997, on a pro forma basis reflecting the Workflow
Distribution and the results of the completed business combinations accounted
for under the purchase method as if such transactions had occurred on May 1,
1996.
FISCAL YEAR ENDED SIX MONTHS ENDED
YEAR ENDED -------------------------- ----------------------------
-------------------------------- PRO FORMA
DECEMBER 31, DECEMBER 31, APRIL 26, APRIL 26, OCTOBER 26, OCTOBER 25,
1994 1995 1997 1997 1996 1997
--------------- --------------- ----------- ------------- ------------- -------------
Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................ 74.5 75.9 72.8 72.0 72.7 73.6
----- ----- ----- ----- ----- -----
Gross profit.......................... 25.5 24.1 27.2 28.0 27.3 26.4
Selling, general and administrative
expenses.............................. 20.8 20.1 21.2 21.6 20.7 20.7
Non-recurring acquisition costs......... 1.5
----- ----- ----- ----- ----- -----
Operating income...................... 4.7 4.0 4.5 6.4 6.6 5.7
Interest expense, net................... 1.3 1.7 1.4 1.0 1.3 0.8
Other (income).......................... 0.1 0.2 0.1 0.4 (0.1)
----- ----- ----- ----- ----- -----
PRO FORMA PRO FORMA
OCTOBER 26, OCTOBER 25,
1996 1997
------------- -------------
Revenues................................ 100.0% 100.0%
Cost of revenues........................ 71.9 72.8
----- -----
Gross profit.......................... 28.1 27.2
Selling, general and administrative
expenses.............................. 21.3 21.1
Non-recurring acquisition costs.........
----- -----
Operating income...................... 6.8 6.1
Interest expense, net................... 1.1 1.0
Other (income).......................... 0.2 (0.2)
----- -----
21
FISCAL YEAR ENDED SIX MONTHS ENDED
YEAR ENDED -------------------------- ----------------------------
-------------------------------- PRO FORMA
DECEMBER 31, DECEMBER 31, APRIL 26, APRIL 26, OCTOBER 26, OCTOBER 25,
1994 1995 1997 1997 1996 1997
--------------- --------------- ----------- ------------- ------------- -------------
Income before provision for income taxes
and extraordinary items............... 3.3 2.3 2.9 5.3 4.9 5.0
Provision for income taxes.............. 0.3 1.1 2.2 1.1 2.1
----- ----- ----- ----- ----- -----
Income before extraordinary items....... 3.0 2.3 1.8 3.1 3.8 2.9
Extraordinary items--loss on early
terminations of credit facilities, net
of income taxes....................... 0.2 0.2
----- ----- ----- ----- ----- -----
Net income.............................. 3.0% 2.1% 1.6% 3.1% 3.8% 2.9%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
PRO FORMA PRO FORMA
OCTOBER 26, OCTOBER 25,
1996 1997
------------- -------------
Income before provision for income taxes
and extraordinary items............... 5.5 5.3
Provision for income taxes.............. 2.3 2.2
----- -----
Income before extraordinary items....... 3.2 3.1
Extraordinary items--loss on early
terminations of credit facilities, net
of income taxes.......................
----- -----
Net income.............................. 3.2% 3.1%
----- -----
----- -----
PRO FORMA COMBINED RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 25, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 26,
1996
Pro forma revenues increased 5.3%, from $169.2 million for the six months
ended October 26, 1996, to $178.1 million for the six months ended October 25,
1997. This increase was primarily due to sales to a large new account, passing
on increased product costs to customers and increased sales to existing
customers.
Pro forma gross profit increased 1.6%, from $47.6 million, or 28.1% of pro
forma revenues, for the six months ended October 26, 1996, to $48.4 million, or
27.2% of pro forma revenues, for the six months ended October 25, 1997. This
decrease in gross profit as a percentage of revenues was primarily due to
inefficiencies related to the start-up period of a large new account.
Pro forma selling, general and administrative expenses increased 4.1%, from
$36.0 million, or 21.3% of pro forma revenues for the six months ended October
26, 1996, to $37.5 million, or 21.1% of pro forma revenues for the six months
ended October 25, 1997. The decrease in selling, general and administrative
expenses as a percentage of revenues was primarily due to spreading fixed costs
over a larger revenue base during the six months ended October 25, 1997.
The provision for income taxes has been estimated using an effective income
tax rate of 41.0%, which represents anticipated federal and state income tax
rates.
CONSOLIDATED RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 25, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 26,
1996
Consolidated revenues increased 7.1%, from $161.8 million for the six months
ended October 26, 1996, to $173.3 million for the six months ended October 25,
1997. This increase was primarily due to sales to a large new account, passing
on increased product costs to customers, increased sales to existing customers
and the purchase acquisition of FMI Graphics, Inc. in 1997, which was
subsequently merged into SFI.
Gross profit increased 3.5%, from $44.2 million, or 27.3% of revenues, for
the six months ended October 26, 1996 to $45.8 million, or 26.4% of revenues,
for the six months ended October 25, 1997. This decrease in gross profit as a
percentage of revenues was primarily due to inefficiencies related to the start-
up period of a large new account.
Selling, general and administrative expenses increased 7.4%, from $33.5
million, or 20.7% of revenues, for the six months ended October 26, 1996 to
$36.0 million, or 20.7% of revenues, for the six months ended October 25, 1997.
Interest expense, net of interest income, decreased 38.2%, from $2.3 million
for the six months ended October 26, 1996 to $1.4 million for the six months
ended October 25, 1997. The decrease was due
22
primarily to the fact that a portion of the debt outstanding during the six
months ended October 26, 1996 was repaid by U.S. Office Products upon
acquisition of the Pooled Companies and U.S. Office Products did not charge the
Company interest on the long-term portion of the payable balance.
Other expense decreased $788,000 from other expense of $622,000 for the six
months ended October 26, 1996, to other income of $166,000 for the six months
ended October 25, 1997. The decrease is primarily the result of costs incurred
at one of the Pooled Companies, prior to October 26, 1996, relating to a
contemplated initial public offering that was aborted as a result of that
company's acquisition by U.S. Office Products.
Provision for income taxes increased from $1.7 million for the six months
ended October 26, 1996 to $3.5 million for the six months ended October 25,
1997, reflecting effective income tax rates of 21.7% and 40.5%, respectively.
The lower effective tax rate for the six months ended October 26, 1996, compared
to the federal statutory rate of 35.0% plus state taxes, is the result of
certain of the companies included in the results not being subject to federal
income taxes on a corporate level as they had elected to be treated as
subchapter S corporations.
FISCAL YEAR ENDED APRIL 26, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Consolidated revenues increased 8.0%, from $309.4 million in 1995, to $334.2
million in fiscal 1997. This increase was primarily due to sales to a large new
account, passing on increased product costs to customers and increased sales to
existing customers.
Gross profit increased 22.3%, from $74.5 million, or 24.1% of revenues, in
1995 to $91.0 million, or 27.2% of revenues, in fiscal 1997. The increase in
gross profit as a percentage of revenues was due primarily to cost reductions
resulting from an increased utilization of Company owned manufacturing
facilities and to increased rebates and purchase discounts from vendors.
Selling, general and administrative expenses increased 14.4%, from $62.0
million, or 20.1% of revenues, in 1995 to $70.9 million, or 21.2% of revenues,
in fiscal 1997. The increase in selling, general and administrative expenses as
a percentage of revenues was due primarily to an increase in fixed costs as a
result of expansions to Company facilities for anticipated future growth.
The Company incurred non-recurring acquisition costs of $5.0 million for the
fiscal year ended April 26, 1997 in conjunction with business combinations
accounted for under the pooling-of-interests method. These non-recurring
acquisitions costs included accounting, legal and investment banking fees, real
estate and environmental assessments and appraisals, various regulatory fees and
recognition of transaction related obligations. GAAP requires the Company to
expense all acquisition costs (both those paid by the Company and those paid by
the sellers of the acquired companies) related to business combinations
accounted for under the pooling-of-interests method of accounting. The Company
does not anticipate incurring any additional such costs in the two-year period
following the Distribution since, as a result of the Distribution, the Company
is precluded from completing acquisitions under the pooling-of-interests method
for two years from the Distribution Date.
Interest expense, net of interest income, decreased 10.6%, from $5.4 million
in 1995 to $4.8 million in fiscal 1997. The decrease was due primarily to the
fact that a portion of the debt outstanding during 1995 was repaid by U.S.
Office Products upon acquisition of the Pooled Companies and U.S. Office
Products did not charge the Company interest on the long-term portion of the
payable balance.
Other expense increased $570,000, from $62,000 in 1995, to $632,000 in
fiscal 1997. Fiscal 1997 other expense consists primarily of costs incurred at
one of the Pooled Companies, prior to October 26, 1996, relating to a
contemplated initial public offering that was aborted as a result of that
company's acquisition by U.S. Office Products.
23
Provision for income taxes increased from a benefit of $33,000 in 1995 to an
expense of $3.6 million in fiscal 1997, reflecting effective income tax rates of
0.5% and 37.2%, respectively. The benefit from income taxes in 1995, compared to
the federal statutory rate of 35.0% plus state taxes, is the result of certain
of the companies included in the results not being subject to federal income
taxes on a corporate level as they had elected to be treated as subchapter S
corporations. In fiscal 1997, this effect was partially offset by non-deductible
non-recurring acquisition costs.
During fiscal 1997, the Company incurred an extraordinary item totaling
$798,000, which represented the expenses, net of the expected income tax
benefit, associated with the early termination of the credit facility at one of
the Pooled Companies during fiscal 1997.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Consolidated revenues increased 100.7%, from $154.2 million in 1994, to
$309.4 million in 1995. This increase was primarily due to a purchase
acquisition by one of the Pooled Companies in February 1995 (the "1995 Purchased
Company"), sales to new accounts and increased sales to existing customers.
Gross profit increased 89.4%, from $39.3 million, or 25.5% of revenues, in
1994 to $74.5 million, or 24.1% of revenues, in 1995. The increase in gross
profit was due primarily to the acquisition of the 1995 Purchased Company. The
decrease in gross profit as a percentage of revenues was due primarily to the
acquisition of the 1995 Purchased Company, which historically had lower gross
margins.
Selling, general and administrative expenses increased 93.7%, from $32.0
million, or 20.8% of revenues, in 1994 to $62.0 million, or 20.1% of revenues,
in 1995. The increase in selling, general and administrative expenses as a
percentage of revenues was due primarily to the acquisition of the 1995
Purchased Company, which historically had higher selling, general and
administrative expenses as a percentage of revenues.
Interest expense, net of interest income, increased 162.2%, from $2.0
million in 1994 to $5.4 million in fiscal 1995. The increase is due primarily to
financing obtained by one of the Pooled Companies to acquire the 1995 Purchased
Company.
Provision for income taxes decreased from $379,000 in 1994 to a benefit of
$33,000 in 1995, reflecting effective income tax rates of 9.7% and 0.5%,
respectively. The lower effective income tax rate in 1994 and the benefit from
income taxes in 1995, compared to the federal statutory rate of 35.0% plus state
taxes, is the result of certain of the companies included in the results not
being subject to federal income taxes on a corporate level as they had elected
to be treated as subchapter S corporations.
LIQUIDITY AND CAPITAL RESOURCES
At October 25, 1997, the Company had cash of $385,000 and working capital of
$22.7 million. The Company's capitalization, defined as the sum of long-term
debt, long-term payable to U.S. Office Products and stockholder's equity, at
October 25, 1997 was approximately $62.3 million. On a pro forma basis at
October 25, 1997, the Company had working capital of $46.7 million and
capitalization of $98.9 million.
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 of capital expenditures and the payment of
non-recurring acquisition costs of $906,000. Net cash used by financing
activities totaled $123,000.
During the six months ended October 26, 1996, net cash provided by operating
activities was $13.5 million. Net cash used in investing activities was $4.9
million, including $5.5 million of capital expenditures. Net cash used in
financing activities totaled $9.2 million, including the net repayment of debt
of $6.3 million and the payment of dividends at Pooled Companies of $2.8
million.
24
During the fiscal year ended April 26, 1997, net cash provided by operating
activities was $21.4 million. Net cash used in investing activities was $15.8
million, including $4.1 million of net cash paid in acquisitions and $8.9
million of capital expenditures. Net cash used in financing activities totaled
$4.7 million, consisting primarily of the payment of dividends at Pooled
Companies of $6.1 million, partially offset by an increase in debt of $2.2
million.
During the year ended December 31, 1995, net cash provided by operating
activities was $11.1 million. Net cash used in investing activities was $42.4
million, including $37.9 million of net cash paid in acquisitions and $5.7
million of capital expenditures. Net cash provided by financing activities
totaled $31.4 million, consisting primarily of an increase in debt of $35.8
million and the payment of dividends at Pooled Companies of $3.9 million.
During the year ended December 31, 1994, net cash provided by operating
activities was $6.1 million. Net cash used in investing activities was $123,000.
Net cash used in financing activities totaled $5.3 million, consisting primarily
of the payment of debt of $4.2 million and the payment of dividends at Pooled
Companies of $2.3 million.
Workflow Management's anticipated capital expenditures budget for the next
twelve months is approximately $10.0 million for new equipment and maintenance.
As a result of the provisions of Section 355 of the Code, the Company may be
subject to constraints in its ability to issue additional shares of Common Stock
in certain transactions for two years following the date of the Workflow
Distribution. 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 spin-off transaction,
Workflow Management will suffer significant tax liability. Workflow Management
will evaluate any significant future issuance of capital stock to avoid the
imposition of such tax liability. See "Risk Factors--Possible Limitations on
Issuances of Common Stock."
Workflow Management expects that the Distribution Agreement with U.S. Office
Products will call for an allocation of $44.7 million of debt by U.S. Office
Products resulting in the forgiveness of $23.7 million of debt at October 25,
1997, which will be reflected in the financial statements as a contribution of
capital by U.S. Office Products. Workflow Management intends to enter into a
credit facility concurrently with this Offering which will contain certain
financial and other covenants, including maintenance of certain financial tests
and ratios, limitations on capital expenditures and restrictions on the
incurrence of debt or liens, the sale of assets, the payment of dividends,
transactions with affiliates and other transactions. Workflow Management expects
that the credit facility will be adequate to repay the debt allocated by U.S.
Office Products and to fund working capital and capital expenditure needs.
Workflow Management expects that a portion of the credit facility will also be
available to fund the cash portion of future acquisitions, subject to the
maintenance of bank covenants.
The Company anticipates that its current cash on hand, cash flow from
operations, the net proceeds from this Offering and additional financing
available under the bank line of credit will be sufficient to meet the Company's
liquidity requirements for its operations for the next 12 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 12 months or
thereafter.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Workflow Management's envelope business is subject to seasonal influences
from holiday mailings. As Workflow Management 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
25
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 Workflow
Management may achieve for any subsequent fiscal quarter or for a full fiscal
year.
The following tables set forth certain unaudited quarterly financial data
for the year ended December 31, 1995 and the fiscal year ended April 26, 1997
(in thousands). The information has been derived from unaudited consolidated
financial statements, that in the opinion of management reflect adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of such quarterly information.
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- -----------
Revenues.......................................................... $ 65,497 $ 80,595 $ 79,815 $ 83,519 $ 309,426
Gross profit...................................................... 15,770 19,361 19,229 20,107 74,467
Operating income.................................................. 2,681 3,296 3,306 3,172 12,455
Net income........................................................ 1,789 1,529 1,744 1,294 6,356
FISCAL YEAR ENDED APRIL 26, 1997
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- -----------
Revenues.......................................................... $ 79,798 $ 82,000 $ 82,966 $ 89,456 $ 334,220
Gross profit...................................................... 21,717 22,518 22,647 24,159 91,041
Operating income.................................................. 4,650 6,085 4,015 336 15,086
Net income (loss)................................................. 2,974 3,181 1,847 (2,739) 5,263
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during 1994, 1995 or fiscal 1997.
NEW ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE. In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997; earlier
application is not permitted. SFAS No. 128 requires restatement of all prior
period EPS data presented. Workflow Management intends to adopt SFAS No. 128 in
the fiscal year ended April 25, 1998.
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 intends to
adopt SFAS No. 130 in the fiscal year ending April 24, 1999.
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"). The Company has reviewed the potential impact of
the Year 2000 Issue on its business, operations and financial condition and has
concluded that it will not be material.
26
BUSINESS
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECT," AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS," AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS PROSPECTUS.
COMPANY OVERVIEW
Workflow Management is an integrated graphic arts company providing
documents, envelopes and commercial printing to more than 22,000 businesses in
the United States and Canada. The Company also offers various print and
facilities management services which allow customers to realize cost savings by
outsourcing non-core operations, as well as design services and workflow
analysis. Drawing on its position in the industry and its experience in
completing acquisitions, the Company seeks to become a leading consolidator in
the highly-fragmented graphic arts industry. In the last ten years, the
Company's senior management team successfully completed the acquisition of 16
companies for Standard Forms, Inc., the predecessor to SFI. Since the
acquisition of SFI and Hano by the Print Management Division of U.S. Office
Products in January 1997, that same management team has continued its
acquisition strategy by successfully buying six additional companies. As a
result, the Company has grown its revenues and operating income from
approximately $115.1 million and $6.7 million, respectively, for the year ended
December 31, 1996, to annualized revenues and operating income of approximately
$358.1 million and $21.7 million, respectively, for the twelve months ended
October 25, 1997, on a pro forma basis (which is double the six-month revenues
and income for the six months ended October 25, 1997). The Company currently has
over 2,000 employees and has 17 manufacturing facilities in seven states and
five Canadian Provinces, 26 distribution centers, eight print-on-demand centers
and 59 sales offices. Workflow Management intends to continue to pursue its
aggressive acquisition strategy to extend its geographic scope and market
penetration and to increase sales to existing customers by cross-selling
documents, envelopes and commercial printing.
Workflow Management offers a full range of printed products which are either
manufactured by the Company or procured from one of the Company's more than
3,500 vendors. The Company's product line includes: (i) documents, such as
custom invoices, purchase orders, checks and labels; (ii) envelopes, including
specialty envelopes for uses such as credit card solicitations, annual reports,
direct mail and airline tickets; and (iii) commercial printing, such as product
and corporate brochures, personalized direct mail literature, catalogs,
directories and digital imaging. The Company's manufacturing base, combined with
its extensive vendor network and distribution capability, gives the Company
broad flexibility to meet customers' demands for printed products. For the six
months ended October 25, 1997, approximately 56.2% of its revenues were derived
from products purchased by the Company for distribution, and 43.8% were derived
from products manufactured by the Company.
Many of the Company's customers are attempting to reduce their overhead and
direct costs by focusing on core competencies and by outsourcing non-core
operations to specialists. The Company provides customers with print management
services that are designed to control the costs of procuring, storing and using
graphic arts in their business operations. As an outsourcing specialist for
print management services, Workflow Management enables its customers to reduce
costs and improve control by soliciting competitive bids, establishing more
efficient inventory levels and order quantities, and consolidating requisitions,
production and deliveries. The Company also performs design and procurement
services for its customers. In order to meet growing demand, Workflow Management
plans to continue to expand its product lines and services, and to promote its
print and facilities management services, which allow customers to outsource the
management of print products.
27
The Company believes that its proprietary technology and systems are central
to its ability to capitalize effectively on industry outsourcing trends and
provide it with a significant competitive advantage. The Company has developed
its GetSmart and Informa transaction and information systems to support these
services and the Company's sales of print products. The GetSmart system provides
transaction, reporting and control capabilities to the Company and its customers
in the United States. The Informa system supports requisition, distribution and
imaging services with a control database and a variety of customer interfaces
for its customers in Canada, including the Imagenet Document Manager that
provides access via the world wide web. In addition, using the GetSmart and the
Informa systems, the Company has the flexibility to integrate future
acquisitions and increase its customer base rapidly and seamlessly. In addition,
with its technology platform, Workflow Management believes that it is able to
position itself as a premier technology deployer, thus increasing the Company's
attractiveness to potential acquisition targets.
The document, envelope and commercial printing industries that comprise the
graphic arts businesses are highly fragmented, and the Company believes they are
ripe for consolidation. According to the Document Management Industries
Association, the market for documents was approximately $12.7 billion in 1996,
up from $11.1 billion in 1993. The U.S. market for envelopes, as measured by the
Envelope Manufacturers Association, was approximately $3.0 billion in 1996,
compared to $2.7 billion in 1993. According to the Printing Industries of
America trade association, the general commercial segment of the United States
printing industry shipped more than $88 billion of products in 1996, an increase
of 8% over 1995. The Company believes there are 15,000 print distribution
companies operating in the documents industry. Within the envelope industry,
management believes there are approximately 200 envelope manufacturers in the
U.S., and a much larger number of regional and local custom and specialty
envelope printers and distributors. The commercial printing industry is composed
of over 25,000 printing plants, 70% of which have fewer than 10 employees.
The principal subsidiaries of the Company are as follows:
- SFI is a national distributor of documents and other printed consumables
used by businesses in the United States. SFI also provides print
management services that are designed to control its customers' costs of
procuring, storing and using graphic arts. SFI developed its proprietary
GetSmart information system as the platform for delivering these services
and executing sales. SFI has 338 employees, 150 of which are in sales. SFI
has 25 sales offices and nine distribution warehouses located in eight
states.
- United is a regional manufacturer and distributor of envelopes, primarily
custom and specialty envelopes for applications such as credit card
solicitations, annual reports, direct mail and airline tickets. United
manufactures its products in four plants located in New York, New Jersey
and Pennsylvania. United also has several digital pre-press systems for
converting text and graphics to film and plates prior to printing,
enabling United to offer design services to its customers. United has 311
employees, of which 19 are in sales and 223 are in manufacturing.
- DBF is a Canadian manufacturer, printer and distributor of documents and
other printed products, such as labels, direct mail, business
communications, security products, bar coding and thermal labeling. DBF
also offers its customers document and print facility management services
through its proprietary Informa and Imagenet systems. These systems allow
DBF's customers to control printing processes at DBF's eight Imagenet
print centers which are located in six cities across Canada. In addition,
DBF has eleven plants with approximately 1200 employees, of which 854 are
engaged in manufacturing or printing.
- Hano is a manufacturer and printer of documents. Hano has three plants
located in Georgia, Illinois and Massachusetts. Hano has 184 employees.
Approximately 21% of Hano's products are sold to SFI.
28
BUSINESS STRATEGY
The Company's objective is to become a leading single source provider of
printed products and related services to businesses of all sizes. To attain its
goals, Workflow Management plans to grow both externally, through strategic
acquisitions, and internally, through new product development, cross-selling the
full suite of the Company's products and services to its subsidiaries, which had
previously limited product offerings, and cross-utilization of the Company's
proprietary computer systems. In addition, the Company intends to develop
additional systems to establish a position as one of the industry's most
technologically sophisticated providers of printed products and related
management services.
Workflow Management intends to capitalize on consolidation opportunities in
three segments of the North American graphic arts industry: U.S. printed
products, U.S. envelopes and Canadian printed products. Through acquisitions,
the Company plans to expand its presence in new geographic regions and increase
penetration in regions where it currently has operations. In the U.S. printed
products market, the acquisition strategy will focus on the large population of
independent distributors. Workflow Management is the third largest print
distributor in North America. In the last ten years the Company's senior
management team successfully completed the acquisition of 16 smaller
distributors for Standard Forms, Inc., the predecessor to SFI. Since the
acquisition of SFI and Hano by the Print Management Division of U.S. Office
Products in January 1997, that same senior management team has continued its
acquisition strategy by successfully buying six additional companies, including
envelope businesses and print businesses. The Company intends to pursue
additional acquisitions in the highly fragmented U.S. print distribution market.
In the U.S. envelope market, Workflow Management will seek to acquire high
value-added producers of specialty envelope and direct mail concerns. In the
Canadian printed products market, the Company plans to leverage its document
sales force and customer base with selective acquisitions of commercial print
manufacturers.
Workflow Management intends to grow internally through product development,
cross-marketing and cross-utilization of its proprietary GetSmart, Informa and
Imagenet computer systems. A substantial majority of the Company's net sales are
derived from custom documents, envelopes and commercial printing. The Company
believes that its analysis, design work and print management services enable the
Company to better understand customers' requirements, and foster close business
relationships between the Company and its customers. Workflow Management
believes that its knowledge of customer requirements and these relationships
enable the Company to identify new product lines and services in response to
emerging customer opportunities and provide cross-marketing opportunities for
the Company's various product lines and services. The Company also believes that
it will be able to increase sales by implementing its GetSmart, Informa and
Imagenet systems on a Company-wide basis.
PRODUCT LINES
DOCUMENTS. Workflow Management offers a complete line of custom and stock
documents, such as invoices, purchase orders, money orders, bank drafts and
labels. These documents may be fan-folded, roll-fed, snap-apart or cut-sheet,
and manufactured to specification with respect to content, size, plies, paper
and inks. More than 85% of the Company's revenues from sales of documents are
from sales of custom products.
ENVELOPES. Workflow Management offers a complete line of conventional and
specialty envelopes for applications such as billing, credit card solicitations,
annual reports, proxy solicitations, direct mail and airline tickets. These
envelopes are of varying sizes and specialized materials, with constructions
including wallet flap, flat mailer, safety fold, peel and seal, clasp, button
and string, window, expansion and continuous. The Company can customize
dimensions, materials, construction, and graphics to customers' specific
requirements.
COMMERCIAL PRINTING. The Company's commercial printing line includes
products such as corporate brochures, personalized direct mail, catalogs,
directories and promotional products. These products are
29
designed and manufactured to customers' requirements. Workflow Management
provides a variety of custom services, including art direction, digital and
conventional design, layout, illustration, photography and production.
The following table sets forth the amount of the Company's revenue derived
from each of its three product lines for the periods indicated:
FISCAL YEAR SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, APRIL 26, OCTOBER 25,
1995 1997 1997
------------ ----------- -----------
(In thousands)
Documents............................................. $ 178,806 $ 186,787 $ 88,839
Envelopes............................................. 101,642 104,095 51,545
Commercial Printing................................... 24,850 37,426 21,384
PRINT MANAGEMENT
Workflow Management supports its product offering with a selection of
value-added services. For many businesses, the costs of managing, storing, and
using printed products exceed their purchase price. The Company seeks to control
these costs and improve efficiency throughout the workflow by providing systems
analysis, design, and facilities and inventory management services. Workflow
Management delivers its print management services through GetSmart and Informa,
its proprietary computerized transaction and information systems. The Company
does not charge a separate fee for its management services, but instead tailors
its product pricing to reflect the services provided.
GETSMART SYSTEM. The Company offers the GetSmart system in the United
States. GetSmart provides transaction, reporting and control capabilities to the
Company and its customers. SFI introduced GetSmart in 1986, and it re-engineered
the system in 1993 to incorporate advances in hardware and software
technologies. The system's transaction database now includes more than 200,000
SKUs, 12,000 active customers and 3,500 active vendors. Customers can access
GetSmart either off-line, through the Company's sales and customer support
personnel, or on-line, through wide area network, dial-up, leased-line and
Internet connections. This array of delivery options makes GetSmart available to
customers of every size and complexity, and to customers at every level of
computer sophistication. The discussion below summarizes these support
functions. The Company is continually refining and enhancing the GetSmart
system.
A customer can initiate a distribution from inventory by issuing a
requisition through GetSmart. GetSmart then allocates the merchandise to the
cost center and routes the release to the appropriate distribution facility.
Customers can specify their minimum inventory requirements or can rely on
GetSmart's ongoing analysis of usage patterns and lead times. GetSmart notifies
the Company's sales representative when a re-order point is reached, and the
representative negotiates a new purchase order with the customer. The purchase
order is entered into the system and GetSmart tracks the order to the product's
receipt at the Company's distribution center. At this point the storage,
shipment, usage and re-order cycle begins again. Throughout the cycle, the
system supports inventory transfers and write-offs, returns of items
requisitioned in error, and purchases that are shipped directly to customers by
the Company's vendors. GetSmart produces invoices when merchandise is received
at the Company's distribution centers, or when it is shipped to customers, and
tracks invoices through to remittance. All transactions can be consummated in a
number of electronic formats required by customers' data processing operations.
GetSmart also offers electronic catalogs of 375,000 promotional products and
30,000 office products. The catalogs provide product images and descriptions, as
well as powerful search engines enabling customers to locate the products best
suited to their requirements.
30
GetSmart can generate more than 100 real-time and periodic reports to
customers. These reports detail, summarize and analyze purchases, inventory
level, utilization rates and billing by cost center, product, and product line
to meet each customer's specific needs. Reports can be viewed on-screen in real
time, printed at the customer's premises, printed remotely and delivered to a
customer, or transmitted electronically for further processing by a customer's
internal management information system. The Company maintains five years of
historical data on-line for comparative reports and analyses. In addition,
GetSmart's Base Line Pricing Report routinely analyzes changes in prices charged
to managed accounts, an analysis the Company believes is unique in the industry.
GetSmart also provides customers with a system of management controls for
certain services. Customers may control cost center access with passwords,
allocate inventories to cost centers, limit the transacting and reporting
authority of each cost center by product or product line, constrain purchases
and requisitions to amounts budgeted for each cost center, and suspend
transactions until they are reviewed and approved. The Company can customize
GetSmart to create optimal programs for its customers.
INFORMA SYSTEM. Workflow Management offers the Informa system in Canada.
Informa supports requisition, distribution, and digital imaging services with a
central transaction database and a variety of customer interfaces. In addition
to sophisticated print-on-demand capabilities, Informa provides much of the
functionality of the GetSmart system: inventory inquiries and releases; order
tracking; usage analysis and forecasting; detailed reporting for cost centers
and products; and procurement-card and X.12 EDI billing. Customer interfaces
include terminal access, a graphical user interface client, e-mail, world wide
web browser, touch-tone, and automated voice recognition. Informa is accessed
through leased lines, dial-up service, Internet and wide area networks.
Informa's Electronic Job Ticket ("EJT") interface is a specialized e-mail
enabling customers to requisition documents and other products from the
Company's distribution centers, and to route attached documents to the Company's
network of Imagenet print-on-demand facilities. EJT's print-on-demand feature
supports a broad range of custom specifications, including quantities; fixed and
variable imaging; page orientation; paper size, weight, grade, and color;
drilling and binding; and cover page. EJT also provides fields for the
customer's budget code, billing information, and distribution instructions. EJT
originates jobs ranging from single impressions, to thousands of copies
delivered to a single location, to thousands of documents mailed to tens of
thousands of recipients.
IMAGENET DOCUMENT MANAGER. The Company intends to deploy an Imagenet
Document Manager for use in the United States. Workflow Management is
negotiating with U.S. Office Products regarding the licensing of the Imagenet
Document Manager to U.S. Office Products.
Workflow Management provides customers with world wide web access to Informa
through its Imagenet Document Manager. This application provides a browser
interface to Informa's transaction and reporting features for managing and
distributing inventories held for customers. The application also offers a
full-featured document librarian, with image storage, retrieval, viewing,
downloading, archiving, and version control. In addition, Imagenet Document
Manager provides estimation and requisition for digital print-on-demand orders.
Production images for these orders can be uploaded to the world wide web or
retrieved from the application's document library.
OPERATIONS
SALES. Workflow Management sells its products directly to end-users, as
well as to distributors and brokers who re-sell to end-users. The Company
employs more than 350 sales representatives and 175 customer service personnel
in 59 sales offices throughout the United States and Canada. Sales
representatives are compensated through salaries and commissions. Commissioned
sales representatives are compensated based on either product sales or gross
margins. In addition to the Company's line of documents, commercial printing,
envelopes and related products, the sales force offers value-added services
including workflow analysis, design, document management, and print-on-demand.
The
31
Company's sales force is supported by its GetSmart and Informa transaction and
information systems. See "--Print Management."
PURCHASING. Workflow Management purchases raw materials such as paper
stock, ink, stock envelopes, adhesives, plates, film, chemicals, and cartons
from a variety of manufacturers and resellers. These materials are purchased
job-by-job or under contracts with terms of up to two years. Longer-term supply
contracts generally specify services to be provided and may guarantee product
availability, but typically reserve to vendors the right to adjust prices as
required by market conditions. The largest suppliers of paper stock to the
Company are Rollsource, Appleton, Mead, Avenor and Domtar. Workflow Management
also purchases finished goods for resale to customers. These finished goods
include the Company's full line of documents, envelopes and commercial printing.
Workflow Management has more than 3,500 suppliers of finished goods, including,
among the largest, Ward Kraft Forms, United Computer Supplies, Gilman Sky,
Transkrit and United Stationers, Inc.
MANUFACTURING. Workflow Management manufactures documents and envelopes.
Documents produced by the Company include continuous and snap-apart forms, roll
forms, cut sheets and label/form combinations, and checks and other security
documents. Workflow Management operates 13 document plants in Canada and four in
the United States. These plants employ more than 1,100 manufacturing personnel
and utilize over 250 presses and other machines. The Company also manufactures a
broad line of conventional and specialty envelopes in four plants located in New
York, New Jersey and Pennsylvania. The envelope plants currently operate more
than 80 manufacturing and printing machines. Workflow Management operates a
network of eight Imagenet print-on-demand facilities in Canada, providing
digital imaging and litho quick printing. The Company also operates several
conventional and digital pre-press systems for converting text and graphics to
film and plates prior to printing. Among these pre-press capabilities are
several state-of-the art digital systems which enhance overall production
efficiency and provide high-process capabilities to customers.
DISTRIBUTION. Products manufactured by Workflow Management are either
shipped directly to customers or held in inventory and shipped as requisitioned
by customers. Finished goods purchased by the Company from manufacturers and
wholesalers are either shipped directly to customers by vendors, or shipped to,
stored in, and shipped from one of the Company's distribution centers. Workflow
Management owns or leases nine distribution centers in the United States and 17
in Canada, and rents additional warehouse space as necessary. More than 120
distribution personnel are employed by Workflow Management. Products are
transported from the Company's suppliers and to its customers by short-haul,
regional, contract and custom carriers, as well as by air and ground courier
services.
CUSTOMERS
Workflow Management has more than 22,000 customers ranging in size from
small office/home office businesses to Fortune 500 companies in industries such
as healthcare, insurance, energy, advertising, travel and financial services.
Significant customers of the Company include: Bank of Montreal, Automatic Data
Processing; Aetna, Inc.; Citibank N.A.; Chase Manhattan Corp.; Group Health
Incorporated; Health Insurance Plan of Greater New York, Inc.; Heilig-Meyers
Company; Merrill Lynch & Co., Inc.; Popular, Inc.; Shell Canada; and Salomon
Smith Barney Holdings, Inc.
The Company's five largest customers accounted for 10.7% of the Company's
net sales for the six months ended October 25, 1997. The Company's single
largest customer accounted for approximately 3.9% of net sales for the six
months ended October 25, 1997. That customer has recently agreed to be acquired.
Although the Company has not received notice to the contrary, there can be no
assurance that such customer will extend its existing contract with the Company
upon its acquisition.
32
COMPETITION
Workflow Management competes for retail sales of documents and envelopes
against other independent distributors and against manufacturers' direct sales
organizations. In commercial printing, the Company also competes with
manufacturers' direct sales organizations, independent brokers, advertising
agencies and design firms. The principal competitive factors in the graphic arts
industry are price, quality, selection, services, production capacity, delivery
and customer support.
Although Workflow Management often competes with smaller businesses, it also
competes against the largest competitors in the North American documents
industry, such as Moore Corporation Ltd., Reynolds & Reynolds Company, Standard
Register Company and Wallace Computer Services, Inc., and the largest
competitors in the U.S. envelope industry, such as Mail-Well, Westvaco and
Tension Envelope Company. The largest competitors for commercial printing
include direct sales organizations of Graphic Industries, Inc., R. R. Donnelley
& Sons, Quebecor, Inc. and World Color Press, Inc. Most of these competitors
have substantially greater financial resources than the Company.
EMPLOYEES
As of December 31, 1997, Workflow Management had more than 2,000 full- and
part-time employees, including over 550 in sales and sales support and more than
1,200 in manufacturing. Approximately 31% of the Company's employees in the
United States and approximately 8% of the Company's employees in Canada are
represented by labor unions. There can be no assurance that work stoppages or
strikes will not occur. The Company considers its employee relations to be good.
INTELLECTUAL PROPERTY
Workflow Management has more than 40 registered trademarks in the U.S. and
Canada, including GetSmart, Informa and Imagenet. The Company believes that its
trademarks and other proprietary rights are material to the operations of its
business. Workflow Management regards its GetSmart, Informa and Imagenet
software as proprietary, and relies on a combination of copyright and trademark
laws, trade secrets, confidentiality agreement and contractual provisions to
protect its rights. Workflow Management is not aware that any of its software,
trademarks or other proprietary rights are being infringed by third parties, or
that it infringes proprietary rights of third parties. See "Risk
Factors--Dependence on Intellectual Property Rights; Risks of Infringement."
PROPERTIES
The following table sets forth certain information about the Company's
executive offices and manufacturing and printing facilities:
APPROXIMATE
SQUARE LEASE
FUNCTION AND LOCATION FOOTAGE TITLE EXPIRATION
- ---------------------------------------------------------------------- ------------ ---------- --------------------
EXECUTIVE OFFICE:
Norfolk, Virginia................................................... 26,400 Owned --
MANUFACTURING AND PRINTING:
Conyers, Georgia.................................................... 71,300 Leased 2006
Mt. Olive, Illinois................................................. 82,000 Leased 2004
Springfield, Massachusetts.......................................... 65,000 Leased 2004
Lyndhurst, New Jersey............................................... 16,000 Leased 2000
New York, New York.................................................. 160,000 Leased 2002
33
APPROXIMATE
SQUARE LEASE
FUNCTION AND LOCATION FOOTAGE TITLE EXPIRATION
- ---------------------------------------------------------------------- ------------ ---------- --------------------
New York, New York.................................................. 53,000 Leased 2005
New York, New York.................................................. 60,000 Leased 2002
Mt. Pocono, Pennsylvania............................................ 140,000 Owned --
Calgary, Alberta.................................................... 48,000 Leased 1999
Calgary, Alberta.................................................... 30,000 Leased 1999
Edmonton, Alberta................................................... 81,000 Leased 2006
Victoria, British Columbia.......................................... 14,000 Leased 1999
Winnipeg, Manitoba.................................................. 12,500 Leased 2002
Brampton, Ontario................................................... 174,500 Leased 1999
Brampton, Ontario................................................... 44,200 Leased 2000
London, Ontario..................................................... 17,500 Leased month-to-month
Mississauga, Ontario................................................ 60,000 Leased 2004
Mississauga, Ontario................................................ 7,200 Leased month-to-month
Toronto, Ontario.................................................... 10,000 Leased 2000
Regina, Saskatchewan................................................ 28,000 Leased 2006
Dorval, Quebec...................................................... 42,000 Owned --
Granby, Quebec...................................................... 100,000 Owned --
Pointe Claire, Quebec............................................... 30,000 Leased 1998
In addition to those facilities identified above, Workflow Management leases
other offices, warehouses and distribution centers across the United States and
Canada.
Workflow Management believes that its properties are adequate to support its
operations for the foreseeable future.
ENVIRONMENTAL
The Company's operations and real property are subject to United States and
Canadian federal, state, provincial, and local environmental laws and
regulations, including those governing the use, storage, treatment,
transportation and disposal of solid and hazardous materials, the emission or
discharge of such materials into the environment, and the remediation of
contamination associated with such disposal or emissions. Certain of these laws
and regulations may impose joint and several liability on lessees and owners or
operators of facilities for the costs of investigation or remediation of
contaminated properties, regardless of fault or the legality of the original
disposal.
The past and present business operations of the Company that are subject to
the Environmental Laws and regulations include the use, storage, handling, and
contracting for recycling or disposal of hazardous and nonhazardous materials
such as washes, inks, alcohol-based products, fountain solution, photographic
fixer and developer solutions, machine and hydraulic oils, and solvents.
Workflow Management generates both hazardous and non-hazardous waste.
Limited environmental investigations have been conducted at certain of the
Company's properties. Based on these investigations and all other available
information, management believes that the Company's current operations are in
substantial compliance with the Environmental Laws. The Company is not aware of
any liability under the Environmental Laws that the Company believes would have
a material
34
adverse effect on the Company's business, financial condition or results of
operations. No assurance can be given, however, that all potential environmental
liabilities have been identified or that future uses, conditions or legal
requirements (including, without limitation, those that may result from future
acts or omissions or changes in applicable Environmental Laws) will not require
material expenditures to maintain compliance or resolve potential liabilities.
LEGAL MATTERS
Workflow Management is involved in various lawsuits arising in the ordinary
course of business. Workflow Management believes that the outcome of these
matters will not have a material adverse effect on the Company's business,
financial condition or results of operations.
35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Following this Offering, it is anticipated that the directors, executive
officers and key employees of the Company will be as follows:
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
OFFICERS AND DIRECTORS OF THE COMPANY:
Thomas B. D'Agostino................................. 55 Chairman of the Board
Chief Executive Officer and Director
Michael B. Feldman................................... 37 Vice President of Finance and Chief Financial Officer
Thomas A. Brown, Sr.(1)(2)........................... 55 Director*
Gus J. James, II(1)(2)............................... 59 Director*
Jonathan J. Ledecky.................................. 40 Director*
Timothy L. Tabor..................................... 44 Director*
KEY EMPLOYEES OF SUBSIDIARIES:
John Conway.......................................... 55 President of Data Business Forms Limited
Thomas B. D'Agostino, Jr.**.......................... 31 President of SFI Corp.
Robert M. Fishbein................................... 55 Co-President of United Envelope Co., Inc.
Richard M. Schlanger................................. 53 Co-President of United Envelope Co., Inc.
Andre Beaudet........................................ 55 President of Hano Document Printers, Inc.
- ------------------------
* Messrs. Brown, James, Ledecky and Tabor are expected to join the Board of
Directors of Workflow Management immediately following the closing date of
this Offering.
** Thomas B. D'Agostino, Jr. is the son of Thomas B. D'Agostino, Chairman of
the Board and Chief Executive Officer of the Company.
(1) Member of the Audit Committee upon joining the Board of Directors.
(2) Member of the Compensation Committee upon joining the Board of Directors.
The Company intends to increase the size of the Board of Directors from five
to seven members following the closing date of this Offering.
THOMAS B. D'AGOSTINO is Chairman of the Board and Chief Executive Officer of
the Company. Mr. D'Agostino was President of SFI or its predecessor company,
Forms & Peripherals, Inc., from 1972 until 1998, and was appointed President of
U.S. Office Products Print Management Division in January 1997 when U.S. Office
Products acquired SFI and Hano.
MICHAEL B. FELDMAN is Vice President of Finance and Chief Financial Officer
of the Company. Mr. Feldman was appointed Controller of SFI in 1987 and Vice
President of Finance and Chief Financial Officer in 1995. He has served as
Hano's Vice President of Finance and Chief Financial Officer since 1992.
THOMAS A. BROWN, SR. has served as the Vice
President-Purchasing/Sourcing/Logistics of Pfizer, Inc., a large pharmaceutical
company, since May 1996. From June 1991 until May 1996, Mr. Brown was Vice
President-Procurement of Aetna, Inc., a national insurance company.
GUS J. JAMES, II is the President, a director and shareholder of the law
firm of Kaufman & Canoles in Norfolk, Virginia. Mr. James has practiced law with
Kaufman & Canoles since 1967. See "Related Party Transactions."
36
JONATHAN J. LEDECKY will serve as a Director of the Company and each of the
other Spin-Off Companies as of the Distribution Date. He founded Consolidation
Capital Corporation in February 1997 and will serve as its Chairman and Chief
Executive Officer. Mr. Ledecky founded U.S. Office Products in October 1994 and
will serve as its Chairman of the Board until the Distribution Date and served
as its Chief Executive Officer until November 5, 1997. Mr. Ledecky has also
served as the Non-Executive Chairman of the Board of USA Floral Products, Inc.
since April 1997 and as the Non-Executive Chairman of the Board of UniCapital
Corporation since October 1997. Mr. Ledecky served from 1989 to 1991 as the
President of The Legacy Fund, Inc., and from 1991 to September 1994 as President
and Chief Executive Officer of Legacy Dealer Capital Fund, Inc., a wholly-owned
subsidiary of Steelcase Inc., the nation's largest manufacturer of office
furniture products. Prior to his tenure at The Legacy Fund, Inc., Mr. Ledecky
was a partner at Adler and Company and a Senior Vice President at Allied Capital
Corporation, an investment management company.
TIMOTHY L. TABOR has served as Executive Vice President of U.S. Office
Products Print Management Division and Executive Vice President and Chief
Operating Officer of SFI and Hano since May 1997. From 1996 until 1997, he
served as an executive officer of SFI and Hano. From 1993 to 1995, Mr. Tabor
managed his own investments. From 1987 to 1993, Mr. Tabor held various positions
with Tudor Investment Corp., serving as Director of Technology from 1987 to
1990, Director of the Securities Department from 1990 until 1992 and as a
proprietary trader in 1993.
JOHN CONWAY has served as President of DBF since 1992. From 1987 to 1992,
Mr. Conway was Vice President and General Manager of Data East.
THOMAS B. D'AGOSTINO, JR. was appointed President of SFI in 1998. He
previously served as Vice President of Sales of SFI from 1997 until 1998. From
1995 to 1997, he served as President of Hano. From 1993 to 1995, Mr. D'Agostino,
Jr. held several other positions with Hano, including Vice President of Sales
and Marketing and General Manager.
ROBERT M. FISHBEIN is Co-Chairman of United. He has also served as
Co-President of United since 1994. From 1982 to 1994, Mr. Fishbein held the
position of Executive Vice President of United.
RICHARD M. SCHLANGER is also Co-Chairman of United. He has also served as
Co-President of United since 1994. From 1982 to 1994, Mr. Schlanger held the
position of Executive Vice President of United.
ANDRE BEAUDET is President of both Hano and Multiple Pakfold, Inc., the
distributor arm of DBF. Mr. Beaudet joined DBF in 1992 when it acquired Southam
Paragon, where he had been employed since 1965. From 1986 to 1997, Mr. Beaudet
held a variety of positions at Southam Paragon, including President and Vice
President.
Directors are elected for a one-year term and hold office until their
successors have been elected and qualified or until such director's earlier
resignation or removal.
COMMITTEES OF THE BOARD
The Board of Directors will have an Audit Committee effective following the
closing date of the Offering. The Audit Committee will be charged with reviewing
Workflow Management's annual audit and meeting with the Company's independent
accountants to review the Company's internal controls and financial management
practices. Messrs. Brown and James will be members of the Audit Committee upon
joining the Board of Directors.
The Board of Directors will have a Compensation Committee effective
following the closing date of the Offering. The Compensation Committee will be
charged with determining the compensation of Workflow Management's executive
officers and administering any stock incentive plan the Company may adopt.
Messrs. Brown and James will be members of the Compensation Committee upon
joining the Board of Directors.
37
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Jonathan J. Ledecky entered into a services agreement with U.S. Office
Products on January 13, 1998 (the "Ledecky Services Agreement"), effective on
the Distribution Date and contingent on the consummation of the Distributions.
The Ledecky Services Agreement will expire on September 30, 1998 if none of the
Distributions has occurred by that date. If the Ledecky Services Agreement
becomes effective, it will replace his employment agreement with U.S. Office
Products as amended November 4, 1997.
The Ledecky Services Agreement governs Mr. Ledecky's continuing obligations
to U.S. Office Products and also provides certain benefits and obligations with
respect to Workflow Management and the other Spin-Off Companies. Under the
Ledecky Services Agreement, Mr. Ledecky remains an employee of U.S. Office
Products, at an annual salary of $48,000, through June 30, 2001, with the
contract terminable by U.S. Office Products only if he violates the
non-competition provision of the agreement.
The Ledecky Services Agreement provides for non-competition and
non-solicitation restrictions until the fourth anniversary of the Distribution
Date. These provisions generally restrict Mr. Ledecky from, among other things,
investing in or working for or on behalf of any business selling any products or
services in direct competition with U.S. Office Products and the Spin-Off
Companies (collectively, the "U.S. Office Products Companies"), within 100 miles
of any location where any of the U.S. Office Products Companies conducts
business. (For this purpose, "products or services" are those in effect as of
January 13, 1998.) The Ledecky Services Agreement prohibits Mr. Ledecky from
calling upon managerial employees of the U.S. Office Products Companies to hire
them away and from calling upon customers of the U.S. Office Products Companies
to solicit or sell products or services in direct competition with the U.S.
Office Products Companies. Mr. Ledecky is also barred from hiring away for
Consolidation Capital Corporation any person then or in the preceding one year
employed by the U.S. Office Products Companies. The Ledecky Services Agreement
includes Mr. Ledecky's agreement that four years is a reasonable period of time
for this provision and that U.S. Office Products will assign to Workflow
Management and the other Spin-Off Companies the ability to enforce the
non-competition provisions described above as to their own businesses.
Under the Ledecky Services Agreement, the Board of Directors of U.S. Office
Products has agreed that Mr. Ledecky will receive a stock option for Common
Stock from Workflow Management as of the Distribution Date. The Board of
Directors of U.S. Office Products intends the option to be compensation for Mr.
Ledecky's services to Workflow Management as a director, and certain services as
an employee. The option will cover up to 7.5% of the outstanding Common Stock
determined as of the Distribution Date, with no anti-dilution provisions in the
event of issuance of additional shares of Common Stock (other than with respect
to stock splits or reverse stock splits). The option will have a per share
exercise price equal to the price of the first trade (the "Initial Trading
Price") on the day the Common Stock is first publicly traded (the "First Trade
Date").
It is expected that Mr. Ledecky's option will become exercisable as to
two-thirds of the shares it covers as of the 12-month anniversary of the First
Trade Date. The remainder of the option will become exercisable as follows: (i)
as of the 18-month anniversary of the First Trade Date if the average closing
trading price over the 15 business days preceding that anniversary date exceeds
the Initial Trading Price (with the prices adjusted for stock splits or reverse
stock splits or other corporate events that cause Workflow Management to adjust
substantially all outstanding options) by at least 25% or (ii) as of the sixth
anniversary of the First Trade Date if the clause (i) condition is not met and
Mr. Ledecky is still employed by Workflow Management at that anniversary. Option
exercisability will accelerate if Mr. Ledecky dies before the option expires or,
if and to the extent that, Workflow Management accelerates the exercise schedule
of options for substantially all management option holders. All unexercised
portions of the option will expire ten years after its date of grant or, if
applicable, as of the date Mr. Ledecky violates his non-competition agreement
with Workflow Management.
38
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until a Compensation Committee of the Board of Directors is constituted,
decisions regarding the compensation of executive officers will be made by the
Board of Directors.
No member of the Board of Directors of Workflow Management has ever been an
officer of the Company or any of its subsidiaries, except that Mr. D'Agostino is
the President of U.S. Office Products Print Management Division, and a member of
the Board of Directors of SFI and Mr. Tabor is the Executive Vice President of
U.S. Office Products Print Management Division and the Executive Vice President
and Chief Operating Officer of SFI and Hano. In addition, Mr. Ledecky was the
Chief Executive Officer of U.S. Office Products until November 5, 1997 and will
be Chairman of U.S. Office Products until the Distribution Date.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid by the Company for services rendered during the fiscal year ended April 26,
1997 to the Chief Executive Officer and to the other officers of the Company
whose combined compensation exceeded $100,000 during this period (collectively
the "Named Officers"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM
-------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION
- ---------------------------------------------------------- --------- --------- ------------- -------------
Thomas B. D'Agostino
Chairman of the Board,
Chief Executive Officer and
Director of the Company................................. $ 400,000 $ 100,000 -- $ 11,014(1)
Michael B. Feldman
Vice President of Finance
and Chief Financial Officer of the Company.............. $ 119,020 $ 25,000 36,391 $ 6,337(2)
Timothy L. Tabor (3)
Executive Vice President-
U.S. Office Products Print
Management Division and Director of the Company......... $ 170,000 $ 15,000 48,522 $ 4,834(4)
- ------------------------
(1) Includes $6,536 of insurance premiums and $4,479 of 401(k) plan
contributions paid by the Company on Mr. D'Agostino's behalf.
(2) Includes $3,268 of insurance premiums and $3,069 of 401(k) plan
contributions paid by the Company on Mr. Feldman's behalf.
(3) The Company anticipates that Mr. Tabor will resign as an officer of U.S.
Office Products, SFI and Hano prior to the Workflow Distribution.
(4) Includes $4,834 of insurance premiums paid by the Company on Mr. Tabor's
behalf.
EMPLOYMENT CONTRACTS AND RELATED MATTERS
On January 23, 1997, SFI entered into an employment agreement with Thomas B.
D'Agostino. The employment agreement provides for a four-year term. Pursuant to
this agreement, Mr. D'Agostino is entitled to receive minimum annual
compensation of $400,000, incentive bonuses as determined by the compensation
committee of the U.S. Office Products' Board of Directors and certain
perquisites and benefits. In the event that Mr. D'Agostino's employment is
terminated for any reason other than cause, Mr. D'Agostino's employment
agreement provides that he is entitled to receive his base salary and benefits
39
for the longer of (i) six months from the date of termination, or (ii) the
remaining time under the term of the employment agreement. The employment
agreement also contains a non-competition covenant which prohibits Mr.
D'Agostino from engaging in certain activities during the term of the employment
agreement and for the longer of (i) a period of one year thereafter, or (ii) as
long as Mr. D'Agostino continues to receive severance payments from SFI.
On January 23, 1997, Hano entered into an employment agreement with Timothy
L. Tabor in the capacity of Executive Vice President. The employment agreement
provides a one-year initial term and a one-year renewal term. Pursuant to this
agreement, Mr. Tabor is entitled to receive minimum annual compensation of
$260,000, incentive bonuses as determined by the compensation committee of the
U.S. Office Products' Board of Directors and certain perquisites and benefits.
In the event that Mr. Tabor's employment is terminated for any reason other than
cause, Mr. Tabor's employment agreement provides that he is entitled to receive
his base salary and benefits for the longer of (i) three months from the date of
termination, or (ii) the remaining time under the term of the employment
agreement. The employment agreement also contains a non-competition covenant
which prohibits Mr. Tabor from engaging in certain activities during the term of
the employment agreement and for the longer of (i) a period of one year
thereafter, or (ii) as long as Mr. Tabor continues to receive severance payments
from Hano.
INDEMNIFICATION
The Certificate of Incorporation of the Company provides that no director
will be liable to the Company or its stockholders for monetary damages for a
breach of fiduciary duty to the fullest extent permissible under Delaware law.
The Company's By-laws provide that the Company will, to the fullest extent
permitted under Delaware law, indemnify its officers and directors against any
damages arising out of their actions as officers or directors of the Company.
1998 STOCK INCENTIVE PLAN
Prior to consummation of this Offering, the Company anticipates authorizing
a stock incentive plan covering officers, directors and key employees of the
Company and its subsidiaries.
OPTIONS GRANTED IN FISCAL YEAR 1997
The following table sets forth certain information regarding options to
acquire common stock of U.S. Office Products granted to the Named Officers
during the year ended April 26, 1997. All options were granted by U.S. Office
Products as options to acquire U.S. Office Products' common stock and are
expected to be replaced with options to acquire Common Stock of the Company in
connection with the Workflow Distribution. See "The Spin-Offs From U.S. Office
Products." Upon consummation of the Workflow Distribution, the number of stock
options granted to officers, directors and employees of the Company and their
exercise prices will be determined according to a formula to be set by the Board
of Directors or Compensation Committee of U.S. Office Products prior to this
Offering.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENT OF APPRECIATION FOR
TOTAL OPTIONS OPTION TERM (3)
OPTIONS GRANTED IN EXERCISE EXPIRATION --------------------
NAME GRANTED (1) FISCAL YEAR(2) PRICE DATE 5% 10%
- ---------------------------------- ----------- --------------- ------------- ----------- --------- ---------
Thomas B. D'Agostino (4).......... -- 0.0% -- -- -- --
Timothy L. Tabor(5)(6)............ 48,522 12.1% $ 10.70 1/24/2007 $ 326,513 $ 827,448
Michael B. Feldman (5)(6)......... 36,391 9.0% $ 10.70 1/24/2007 $ 244,881 $ 620,577
- --------------------------
(1) The options granted are non-qualified stock options, which are exercisable
at the market price on the date of grant. All of these options are fully
vested.
(2) Total options granted means all options granted to employees of SFI who, as
a result of U.S. Office Products' acquisition of SFI, had their stock
options in SFI converted into U.S. Office Products' stock options.
40
(3) The dollar amounts under these columns are the results of calculations at
assumed annual rates of stock appreciation of 5% and 10%. These assumed
rates of growth were selected by the Securities and Exchange Commission (the
"Commission") for illustration purposes only. They are not intended to
forecast possible future appreciation, if any, of stock prices. No gain to
the optionees is possible without an increase in stock prices, which will
benefit all stockholders.
(4) Thomas B. D'Agostino was granted 45,000 options at an exercise price of
$15.17 on April 28, 1997, which expire on April 28, 2007.
(5) The options granted to Michael B. Feldman and Timothy L. Tabor during fiscal
1997 are the result of the acquisition of SFI by U.S. Office Products. These
options represent the U.S. Office Products' stock options into which options
of SFI were converted.
(6) Michael B. Feldman and Timothy L. Tabor were each granted 15,000 options at
an exercise price of $15.17 on April 28, 1997, which expire on April 28,
2007. Mr. Feldman was also granted 22,500 options at an exercise price of
$21.13 on September 17, 1997, which expire on September 17, 2007.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED APRIL 26, 1997 AND FISCAL
YEAR-END 1997 OPTION VALUES
The following table sets forth certain information regarding option
exercises and unexercised options held by the Named Officers at April 26, 1997.
All options were granted by U.S. Office Products as options to acquire U.S.
Office Products' common stock and are expected to be replaced with options to
acquire shares of Common Stock of the Company in connection with the Workflow
Distribution. See "The Spin-Offs From U.S. Office Products." Upon consummation
of the Workflow Distribution, the number of stock options granted to officers,
directors and employees of the Company and their exercise prices will be
determined according to a formula to be set by the Board of Directors or
Compensation Committee of U.S. Office Products prior to this Offering.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT APRIL 26, IN-THE- MONEY (1) OPTIONS
1997 AT FISCAL YEAR END ($) (2)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------------- ------------- ----------- ------------- ----------- -------------
Thomas B. D'Agostino........ -- -- -- -- -- --
Timothy L. Tabor............ -- -- 48,522 -- $ 212,526 $ --
Michael B. Feldman.......... -- -- 36,391 -- $ 159,502 --
- ------------------------
(1) Options are "in-the-money" if the closing market price of U.S. Office
Products' common stock exceeds the exercise price of the options.
(2) The value of unexercised options represents the difference between the
exercise price of such options and $15.08, the closing market price of U.S.
Office Products' common stock at April 26, 1997.
41
RELATED PARTY TRANSACTIONS
On January 24, 1997, in separate, related transactions, U.S. Office Products
acquired SFI and Hano from Thomas B. D'Agostino, the Chairman and Chief
Executive Officer of Workflow Management, and other stockholders, including
Thomas B. D'Agostino, Jr., Mr. D'Agostino's son, for a total of 3,628,500 shares
of U.S. Office Products' common stock valued at $18.00 per share. The
transactions were effected through mergers which were accounted for as
pooling-of-interests. At the time of the acquisitions, Mr. D'Agostino owned 98%
of the issued and outstanding securities of SFI, and 75% of the issued and
outstanding securities of Hano, and received 3,387,699 shares of U.S. Office
Products' common stock in consideration for these transactions. Thomas B.
D'Agostino, Jr. received 73,144 shares of U.S. Office Products' common stock in
consideration for these transactions. In connection with the transaction, SFI
entered into a four-year employment agreement with Mr. D'Agostino which provided
an annual salary of $400,000 and a one-year employment agreement with Timothy L.
Tabor, who is expected to be named a director of the Company, which provided an
annual salary of $260,000. See "Management--Employment Contracts and Related
Matters."
The Company has from time to time retained the law firm of Kaufman & Canoles
in connection with certain legal representations. Gus J. James II, who has
agreed to join the Board of Directors of the Company following the closing date
of this Offering, is the President, a director and a shareholder of Kaufman &
Canoles.
Prior to December 1996, SFI leased warehouse space from a partnership in
which Mr. D'Agostino had a 50% interest. The total payments by SFI under this
lease were $81,000 in calendar years 1995 and 1996, respectively. This lease was
terminated in December 1996.
Prior to the Workflow Distribution, the Company expects to enter into a
lease with an entity owned or controlled by Mr. D'Agostino for office space in
Norfolk, Virginia. The terms of any such lease have not yet been determined. The
Company anticipates that lease payments will be based on the market value of the
office space and will be comparable to rents that would be charged to parties
not affiliated with Mr. D'Agostino.
SFI loaned Mr. D'Agostino $453,000 in 1995 and $382,000 in 1996. Interest
accrued on amounts outstanding at prime plus 1%. All of Mr. D'Agostino's
outstanding indebtedness to SFI was offset against dividend distributions to Mr.
D'Agostino.
For a discussion of matters related to the spin-off of the Company from U.S.
Office Products, see "The Spin-Offs From U.S. Office Products."
For a discussion of transactions between the Company and Mr. Ledecky, see
"Management--Director Compensation and Other Arrangements."
42
PRINCIPAL STOCKHOLDERS
The following table sets forth the number and percentage of outstanding
shares of the Common Stock that are beneficially owned as of the date of this
Prospectus (assuming no exercise of the Underwriters' over-allotment option) and
as adjusted to reflect the sale of the shares of Common Stock offered hereby and
the Workflow Distribution by (i) all persons known by Workflow Management to own
beneficially more than 5% of the Common Stock, (ii) each director and each Named
Officer who is a stockholder, and (iii) all directors and executive officers as
a group. All persons listed below have sole voting and investment power with
respect to their shares of Common Stock unless otherwise indicated.
PERCENT
------------------------
PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- -------------------------------------------------------------------------------- ------------ ----------- -----------
OFFICERS AND DIRECTORS
Thomas B. D'Agostino (1)........................................................ *
301 Australian Ave.
Palm Beach, FL 33480
Thomas A. Brown, Sr............................................................. 0%
165 Flanders Road
Bethlehem, CT 06751
Jonathan J. Ledecky (2)......................................................... 1.7
3701 E. Virginia Beach Blvd.
Norfolk, VA 23502
Gus J. James, II................................................................ 0
One Commercial Place
Norfolk, VA 23514
Timothy L. Tabor (3)............................................................ *
276 Park Avenue South
New York, NY 10010
Michael B. Feldman (4).......................................................... *
3701 E. Virginia Beach Blvd.
Norfolk, VA 23502
All current executive officers and directors as a group (six persons)...........
5% STOCKHOLDERS
FMR Corp.(5).................................................................... 11.2
Devonshire Street
Boston, MA 02109
Massachusetts Financial Services (5)............................................ 5.9
500 Boylston Street
Boston, MA 02116
43
- ------------------------
* Less than 1%.
(1) Includes shares which may be acquired upon exercise of options
exercisable within 60 days following the Workflow Distribution.
(2) Excludes options for U.S. Office Products' Common Stock that will not be
converted into options for Common Stock at the time of the Workflow
Distribution.
(3) Includes shares which may be acquired upon exercise of options
exercisable within 60 days following the Workflow Distribution.
(4) Includes shares which may be acquired upon exercise of options
exercisable within 60 days following the Workflow Distribution.
(5) Based upon a Schedule 13G for U.S. Office Products filed with the Securities
and Exchange Commission.
44
DESCRIPTION OF CAPITAL STOCK
GENERAL
At the time of this Offering and the Workflow Distribution, the Company's
authorized capital stock will consist of shares of Common Stock and
shares of preferred stock, par value $0.001 per share (the "Preferred
Stock"). At the time of this Offering and the Workflow Distribution, the Company
will have outstanding approximately shares of Common Stock and no shares
of Preferred Stock. Set forth below is a description of the Company's capital
stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Subject
to the rights of any then outstanding shares of Preferred Stock, the holders of
the Common Stock are entitled to such dividends as may be declared in the
discretion of the Board of Directors out of funds legally available therefor.
See "Dividend Policy." The holders of Common Stock are entitled to share ratably
in the net assets of the Company upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any Preferred Stock
then outstanding. The holders of Common Stock have no preemptive rights to
purchase any other securities of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. All of the shares of Common Stock to be distributed
pursuant to this Offering will be fully paid and nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Certificate of Incorporation and limitations prescribed by law,
the Board of Directors is expressly authorized to adopt resolutions to issue the
shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the stockholders. The Company has no current plans to issue any shares of
Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the authority of the
Board of Directors described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before
45
the person becomes an interested stockholder; (ii) the interested stockholder
acquired 85% or more of the outstanding voting stock of the corporation in the
same transaction that makes such person an interested stockholder (excluding
shares owned by persons who are both officers and directors of the corporation,
and shares held by certain employee stock ownership plans); or (iii) on or after
the date the person becomes an interested stockholder, the business combination
is approved by the corporation's board of directors and by the holders of at
least 66 2/3% of the corporation's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholder. Under
Section 203, an "interested stockholder" is defined as any person who is: (i)
the owner of 15% or more of the outstanding voting stock of the corporation; or
(ii) an affiliate or associate of the corporation if such affiliate or associate
was the owner of 15% or more of the outstanding voting stock of the corporation
at any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders, to exempt itself from coverage, provided that such bylaws or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. The Company has not adopted such an
amendment to its Certificate of Incorporation or By-laws.
LIMITATION ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
Pursuant to the Certificate of Incorporation and under Delaware law,
directors of Workflow Management are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
The Company's By-laws provide that the Company will, to the fullest extent
permitted under Delaware law, indemnify its officers and directors against any
damages arising out of their actions as officers or directors of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be .
46
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market
following this Offering and the Workflow Distribution could have an adverse
effect on the market price of the Common Stock. Upon completion of this Offering
and the Workflow Distribution, Workflow Management will have shares of
Common Stock outstanding. The shares of Common Stock offered by the Company
hereby (and any shares sold pursuant to the exercise of the Underwriters'
over-allotment option) will be freely tradable without restriction other than in
the hands of "affiliates" of the Company as defined in Rule 144. shares of
Common Stock issued upon consummation of the Workflow Distribution will be
freely tradeable after the Workflow Distribution other than in the hands of
"affiliates" of the Company as defined in Rule 144. Common stock in the hands of
affiliates will be "restricted securities" subject to Rule 144 promulgated under
the Securities Act. Beginning 180 days after the date of this Prospectus,
additional shares of Common Stock will become eligible for sale upon
expiration of the 180 day lock-up agreements with the Representatives of the
Underwriters.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction) for
at least one year, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the outstanding Common
Stock (approximately shares of Common Stock immediately after this
Offering or shares if the Underwriters' over-allotment option is exercised
in full) or (ii) the average weekly trading volume in the Common Stock in the
over-the-counter market during the four calendar weeks preceding the date on
which notice of such sale is filed pursuant to Rule 144. Sales under Rule 144
are also subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A stockholder (or stockholders whose shares are aggregated) who is not
an affiliate of the Company for at least 90 days prior to a sale and who has
beneficially owned "restricted securities" for at least two years is entitled to
sell such shares under Rule 144 without regard to the limitations described
above.
The Company intends to register the shares of Common Stock reserved for
issuance pursuant to its stock incentive plan as soon as practicable following
the date of this Prospectus. Options to acquire shares of Common Stock will
be exercisable upon consummation of the Workflow Distribution. Following this
Offering and the Workflow Distribution, in view of the large number of shares
freely-tradeable and available for immediate sale, the market for the Company's
Common Stock could be highly volatile, which could adversely affect the trading
price of the Common Stock. See "Potential Volatility of Stock Price and Other
Risks Associated with Shares Eligible for Immediate Sale."
47
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, BancAmerica Robertson Stephens, Morgan Stanley Dean Witter and
Sands Brothers & Co., Ltd. (the "Representatives"), have severally agreed,
subject to the terms and conditions of an underwriting agreement among the
Company and the Underwriters (the "Underwriting Agreement"), to purchase the
number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all of such shares
if any are purchased.
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------------------------- -----------
BancAmerica Robertson Stephens.....................................................
Morgan Stanley Dean Witter.........................................................
Sands Brothers & Co., Ltd. ........................................................
-----------
Total..........................................................................
-----------
-----------
The Representatives have advised the Company that they propose to offer the
shares of Common Stock to the public at the offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall affect the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the same price per share as the Company
will receive for the shares that the Underwriters have agreed to
purchase from the Company. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of Common Stock to be purchased by it shown in the above table represents
as a percentage of the shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those on
which the shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Pursuant to the terms of the Lock-Up Agreements, the holders of
approximately shares of the Common Stock have agreed with the
Representatives that for a period of 180 days after the date of this Prospectus
(the "Lock-Up Period"), that, subject to certain limited exceptions, they will
not sell or otherwise dispose of shares of Common Stock, including shares
issuable under options or warrants exercisable during the Lock-Up Period, any
options or warrants to purchase shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock owned directly by
such holders or with respect to which they have the power of disposition without
the prior written consent of BancAmerica Robertson Stephens. However,
BancAmerica Robertson Stephens may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. There are no agreements between the Representatives and any of the
Company's stockholders providing consent by the Representatives to the sale of
shares prior to the expiration of the Lock-Up Period. The Company has agreed
that during the Lock-Up Period, the Company will not, subject to certain
exceptions, without the prior written consent of BancAmerica Robertson Stephens,
(i) consent to the disposition of any shares held by stockholders prior to the
expiration of the Lock-Up Period or (ii) issue, sell, contract to sell or
otherwise dispose of, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common
48
Stock, other than the Company's sale of shares in this offering, the issuance of
Common Stock upon the exercise of outstanding options and warrants and the
Company's issuance of options and stock under the existing stock option and
stock purchase plans. See "Shares Eligible for Future Sale."
The Representatives have advised the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby was determined through negotiations between the Company and
the Representatives. Among the factors to be considered in such negotiations
will be prevailing market conditions, certain financial information of the
Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
Certain persons participating in this Offering may engage in transactions,
including syndicate covering transactions or the imposition of penalty bids,
which may involve the purchase of Common Stock on the Nasdaq National Market or
otherwise. Such transactions may stabilize or maintain the market price of the
Common Stock at a level above that which might otherwise prevail in the open
market and, if commenced, may be discontinued at any time.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock will be passed upon for the
Company by Wilmer, Cutler & Pickering, Washington, D.C. Certain legal matters in
connection with the Common Stock will be passed upon for the Underwriters by
Winston & Strawn, Chicago, Illinois.
EXPERTS
The financial statements included in this Prospectus (except as they relate
to the unaudited interim periods) have been audited by various independent
accountants. The companies and periods covered by these audits are indicated in
the individual accountants' reports. Such financial statements have been so
included in reliance on the reports of the various independent accountants given
on the authority of such firms as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 pursuant to the Securities Act with respect to the Common Stock offered
hereby (the "Registration Statement"). This
49
prospectus (the "Prospectus") does not contain all the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain items
of which are omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus concerning the provisions of
any document filed with the Registration Statement as exhibits are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed as an exhibit
to the Registration Statement.
For further information about the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and to the financial
statements, schedules and exhibits filed as a part thereof. Upon completion of
this Offering, the Company will be subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, will file reports and other information with the
Commission. The Registration Statement, the exhibits and schedules forming a
part thereof and the reports and other information filed by the Company with the
Commission in accordance with the Exchange Act may be inspected without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549; at its New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048; and its Chicago Regional
Officer, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the public reference section of the
Commission, 450 Fifth Street N.W., Washington, D.C. 20549, upon payment of the
prescribed rates. The Commission maintains a world wide web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, and the address of
such site is http://www.sec.gov.
50
WORKFLOW MANAGEMENT, INC.
INDEX TO FINANCIAL STATEMENTS
WORKFLOW MANAGEMENT, INC.
Introduction to Pro Forma Financial Information
Pro Forma Combined Balance Sheet as of October 25, 1997 (unaudited)
Pro Forma Combined Statement of Income for the six months ended October 25, 1997
(unaudited)
Pro Forma Combined Statement of Income for the six months ended October 26, 1996
(unaudited)
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997
(unaudited)
Notes to Pro Forma Combined Financial Statements
Report of Price Waterhouse LLP, Independent Accountants
Report of KPMG Peat Marwick LLP, Independent Auditors
Report of KPMG Peat Marwick LLP, Independent Auditors
Report of Hertz, Herson & Company, LLP, Independent Auditors
Report of Hertz, Herson & Company, LLP, Independent Auditors
Consolidated Balance Sheet as of April 30, 1996, April 26, 1997 and October 25, 1997
(unaudited)
Consolidated Statement of Income for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, the fiscal year ended April 26, 1997 and the six
months ended October 26, 1996 (unaudited) and October 25, 1997 (unaudited)
Consolidated Statement of Stockholder's Equity for the years ended December 31, 1994
and 1995, the four months ended April 30, 1996, the fiscal year ended April 26, 1997
and the six months ended October 25, 1997 (unaudited)
Consolidated Statement of Cash Flows for the years ended December 31, 1994 and 1995,
the four months ended April 30, 1996, the fiscal year ended April 26, 1997 and the
six months ended October 26, 1996 (unaudited) and October 25, 1997 (unaudited)
Notes to Consolidated Financial Statements
ASTRID OFFSET CORPORATION
Report of Price Waterhouse LLP, Independent Accountants
Balance Sheet as of July 31, 1997 and October 31, 1997 (unaudited)
Statement of Income for the year ended July 31, 1997 and the three months ended
October 31, 1996 (unaudited) and 1997 (unaudited)
Statement of Stockholder's Equity for the year ended July 31, 1997 and the three
months ended October 31, 1997 (unaudited)
Statement of Cash Flows for the year ended July 31, 1997 and the three months ended
October 31, 1996 (unaudited) and 1997 (unaudited)
Notes to Financial Statements
F-1
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial statements give effect to the spin-off of
Workflow Management, Inc. (the "Company"), formerly the Print Management
Division of U.S. Office Products Company ("U.S. Office Products"), through the
distribution of shares of the Company to U.S. Office Products shareholders (the
"Distribution") and probable and completed acquisitions through March 5, 1998.
The pro forma combined balance sheet gives effect to the Distribution and
the probable acquisition of Astrid Offest Corporation as if both transactions
had occurred as of the Company's most recent balance sheet date, October 25,
1997. The pro forma combined statements of income for the fiscal year ended
April 26, 1997 and the six months ended October 25, 1997 and October 26, 1996
give effect to the Distribution and the acquisitions of Astrid Offset
Corporation and FMI Graphics, Inc., an individually insignificant company, in
business combinations accounted for under the purchase method which have been
completed or are probable during the fiscal year ending April 25, 1998 (the
"Fiscal 1998 Purchase Acquisition"), as if all such transactions had occurred on
May 1, 1996.
The pro forma combined statement of income for the year ended April 26, 1997
includes the audited financial information of the Company for the year ended
April 26, 1997 and the unaudited financial information of the Fiscal 1998
Purchase Acquisition for the period from May 1, 1996 through April 26, 1997.
The pro forma combined statement of income for the six months ended October
25, 1997 includes the unaudited financial information of the Company and the
Fiscal 1998 Purchase Acquisition for the six months ended October 25, 1997.
The pro forma combined statement of income for the six months ended October
26, 1996 includes the unaudited financial information of the Company and the
Fiscal 1998 Purchase Acquisition for the six months ended October 26, 1996
The historical financial statements of the Company give retroactive effect
to the results of the seven companies acquired by the Company during the fiscal
year ended April 26, 1997 in business combinations accounted for under the
pooling-of-interests method of accounting.
The historical financial statements of the Company also reflect an allocated
portion of general and administrative costs incurred by U.S. Office Products.
The allocated costs include expenses such as: certain corporate executives'
salaries, accounting and legal fees, departmental costs for accounting, finance,
legal, purchasing, marketing and human resources, as well as other general
overhead costs. These corporate overheads have been allocated to the Company
using one of several factors, dependent on the nature of the costs being
allocated, including revenues, number and size of acquisitions and number of
employees.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent what the Company's financial position or results of operations would
have been had the transactions which are the subject of pro forma adjustments
occurred on those dates, as assumed, and are not necessarily representative of
the Company's financial position or results of operations in any future period.
The pro forma combined financial statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Prospectus.
F-2
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED BALANCE SHEET
OCTOBER 25, 1997
(IN THOUSANDS)
(UNAUDITED)
ASTRID
WORKFLOW OFFSET PRO FORMA PRO FORMA
MANAGEMENT, INC. CORPORATION ADJUSTMENTS COMBINED
---------------- ----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents......................... $ 385 $ 412 $ (797)(b) $
Accounts receivable, net.......................... 55,334 1,180 56,514
Inventory......................................... 28,216 237 28,453
Prepaid and other current assets.................. 2,454 1,006 3,460
-------- ----------- ----------- -----------
Total current assets............................ 86,389 2,835 (797) 88,427
Property and equipment, net......................... 32,668 1,582 34,250
Intangible assets, net.............................. 2,259 11,082(a) 13,341
Other assets........................................ 8,387 8,387
-------- ----------- ----------- -----------
Total assets.................................... $ 129,703 $ 4,417 $ 10,285 $ 144,405
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term debt................................... $ 4,259 $ 329 $ (329)(b) $ 4,259
Short-term payable to U.S. Office Products........ 22,239 (22,239)(b)
Accounts payable.................................. 25,346 163 25,509
Accrued compensation.............................. 3,742 3,742
Other accrued liabilities......................... 8,126 56 8,182
-------- ----------- ----------- -----------
Total current liabilities....................... 63,712 548 (22,568) 41,692
Long-term debt...................................... 5,660 1,606 33,197(b) 40,463
Long-term payable to U.S. Office Products........... 21,955 13,200(a)
(35,155)(b)
Deferred income taxes............................... 3,638 145 3,783
Other long-term liabilities......................... 19 19
-------- ----------- ----------- -----------
Total liabilities............................... 94,984 2,299 (11,326) 85,957
-------- ----------- ----------- -----------
Stockholder's equity:
Divisional equity................................. 13,425 23,729(b) 37,154
Cumulative translation adjustment................. 42 42
Retained earnings................................. 21,252 21,252
Equity in purchased company....................... 2,118 (2,118)(a)
-------- ----------- ----------- -----------
Total stockholder's equity...................... 34,719 2,118 21,611 58,448
-------- ----------- ----------- -----------
Total liabilities and stockholder's equity...... $ 129,703 $ 4,417 $ 10,285 $ 144,405
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
See accompanying notes to pro forma combined financial statements.
F-3
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 25, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
ASTRID
WORKFLOW OFFSET FMI PRO FORMA PRO FORMA
MANAGEMENT, INC. CORPORATION GRAPHICS, INC. ADJUSTMENTS COMBINED
----------------- ------------- --------------- ------------- -----------
Revenues.................................... $ 173,347 $ 4,708 $ 1,914 $ (1,883)(c) $ 178,086
Cost of revenues............................ 127,547 2,790 1,258 (1,883)(c) 129,712
-------- ------ ------ ------------- -----------
Gross profit............................ 45,800 1,918 656 48,374
Selling, general and administrative
expenses.................................. 35,884 920 499 (84)(d) 37,219
Amortization expense........................ 99 6 147(f) 252
-------- ------ ------ ------------- -----------
Operating income........................ 9,817 992 157 (63) 10,903
Other (income) expense:
Interest expense.......................... 1,390 2 397(h) 1,789
Interest income........................... (18) 18(h)
Other income.............................. (166) (128) (294)
-------- ------ ------ ------------- -----------
Income before provision for income taxes.... 8,593 1,138 155 (478) 9,408
Provision for income taxes.................. 3,480 4 374(i) 3,858
-------- ------ ------ ------------- -----------
Net income.................................. $ 5,113 $ 1,138 $ 151 $ (852) $ 5,550
-------- ------ ------ ------------- -----------
-------- ------ ------ ------------- -----------
Weighted average shares outstanding......... 95,963(j)
Net income per share........................ $ 0.06
-----------
-----------
See accompanying notes to pro forma combined financial statements.
F-4
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 26, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
ASTRID
WORKFLOW OFFSET FMI PRO FORMA PRO FORMA
MANAGEMENT, INC. CORPORATION GRAPHICS, INC. ADJUSTMENTS COMBINED
----------------- ------------- --------------- ----------- -----------
Revenues..................................... $ 161,798 $ 4,851 $ 4,470 $ (1,940)(c) $ 169,179
Cost of revenues............................. 117,563 2,897 3,064 (1,940)(c) 121,584
-------- ------ ------ ----------- -----------
Gross profit............................. 44,235 1,954 1,406 47,595
Selling, general and administrative
expenses................................... 33,409 1,032 1,379 (529)(d) 35,753
462(e)
Amortization expense......................... 91 6 157(f) 254
-------- ------ ------ ----------- -----------
Operating income......................... 10,735 916 27 (90) 11,588
Other (income) expense:
Interest expense........................... 2,250 10 (471)(h) 1,789
Interest income............................ (19) (7) 26(h)
Other...................................... 622 (81) (23) 518
-------- ------ ------ ----------- -----------
Income before provision for income taxes..... 7,863 1,016 47 355 9,281
Provision for income taxes................... 1,708 2,098(i) 3,806
-------- ------ ------ ----------- -----------
Net income............................... $ 6,155 $ 1,016 $ 47 $ (1,743) $ 5,475
-------- ------ ------ ----------- -----------
-------- ------ ------ ----------- -----------
Weighted average shares outstanding.......... 95,963(j)
Net income per share......................... $ 0.06
-----------
-----------
See accompanying notes to pro forma combined financial statements.
F-5
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 26, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
ASTRID
WORKFLOW OFFSET FMI PRO FORMA
MANAGEMENT, INC. CORPORATE GRAPHICS, INC ADJUSTMENTS
----------------- ----------- --------------- -------------
Revenues................................................... $ 334,220 $ 9,963 $ 8,976 $ (3,985)(c)
Cost of revenues........................................... 243,179 5,934 6,186 (3,985)(c)
-------- ----------- ------ -------------
Gross profit........................................... 91,041 4,029 2,790
Selling, general and administrative expenses............... 70,745 2,023 2,779 (1,057)(d)
490(e)
Amortization expense....................................... 204 12 312(f)
Non-recurring acquisition costs............................ 5,006 (5,006)(g)
-------- ----------- ------ -------------
Operating income....................................... 15,086 1,994 11 5,261
Other (income) expense:
Interest expense......................................... 4,827 10 (1,259)(h)
Interest income.......................................... (25) (36) (15) 76(h)
Other.................................................... 632 (209) (15)
-------- ----------- ------ -------------
Income before provision for income taxes and extraordinary
items.................................................... 9,652 2,239 31 6,444
Provision for income taxes................................. 3,591 3,941(i)
-------- ----------- ------ -------------
Income before extraordinary items.......................... $ 6,061 $ 2,239 $ 31 $ 2,503
-------- ----------- ------ -------------
-------- ----------- ------ -------------
Weighted average shares outstanding........................
Income before extraordinary items per share................
PRO FORMA
COMBINED
-----------
Revenues................................................... $ 349,174
Cost of revenues........................................... 251,314
-----------
Gross profit........................................... 97,860
Selling, general and administrative expenses............... 74,980
Amortization expense....................................... 528
Non-recurring acquisition costs............................
-----------
Operating income....................................... 22,352
Other (income) expense:
Interest expense......................................... 3,578
Interest income..........................................
Other.................................................... 408
-----------
Income before provision for income taxes and extraordinary
items.................................................... 18,366
Provision for income taxes................................. 7,532
-----------
Income before extraordinary items.......................... $ 10,834
-----------
-----------
Weighted average shares outstanding........................ 95,963(j)
Income before extraordinary items per share................ $ 0.11
-----------
-----------
See accompanying notes to pro forma combined financial statements.
F-6
WORKFLOW MANAGEMENT, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Adjustment to reflect purchase price adjustments associated with the
acquisition of Astrid Offset Corporation ("Astrid"). The acquisition of Astrid
will be initially funded by U.S. Office Products, accordingly, an adjustment has
been made to increase the long-term payable to U.S. Office Products by $13,200.
The portion of the consideration assigned to goodwill ($11,082) in this
transaction, which was accounted for under the purchase method, represents the
excess of the cost over the fair market value of the net assets acquired. The
Company amortizes goodwill over a period of 40 years. The recoverability of the
unamortized goodwill will be assessed on an ongoing basis by comparing
anticipated undiscounted future cash flows from operations to net book value.
(b) Represents payment of debt of $797 and forgiveness of $23,729 of debt
due to U.S. Office Products as U.S. Office Products agreed to allocate only
$44,722 of the total debt payable to U.S. Office Products by the Company at the
date of the Distribution. The $23,729 of debt forgiven has been reflected as a
contribution of capital to the Company by U.S. Office Products.
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS
(c) Adjustment to reflect the elimination of revenues and cost of revenues
on transactions between Astrid Offset and the Company.
(d) Adjustment to reflect reductions in executive compensation as a result
of the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions.
(e) Adjustment to reflect additional corporate overhead during the period
prior to the formation of the Print Management division by U.S. Office Products
as if the division had been formed on May 1, 1996.
(f) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1998 Purchase
Acquisitions for the periods prior to the respective dates of acquisition. The
Company has recorded goodwill amortization in the historical financial
statements from the respective dates of acquisition forward. The goodwill is
being amortized over an estimated life of 40 years.
(g) Adjustment to reflect the reduction in non-recurring acquisition costs
related to pooling-of-interests business combinations of $5,006 for the fiscal
year ended April 26, 1997.
(h) Adjustment to reflect the reduction in interest expense and interest
income resulting from the forgiveness of $23,729 of debt by U.S. Office
Products.
(i) Adjustment to calculate the provision for income taxes on the combined
pro forma results at an effective income tax rate of approximately 41%. The
difference between the effective tax rate of 41% and the statutory tax rate of
35% relates primarily to state income taxes and non-deductible goodwill.
(j) The weighted average shares outstanding used to calculate pro forma
earnings per share is based upon 95,963 shares of common stock outstanding for
the periods. This is based upon the most current number of shares of common
stock of U.S. Office Products outstanding of 133,000 less 37,037 shares expected
to be repurchased by U.S. Office Products in the Tender Offer, and assumes a
distribution ratio of one share of Company Common Stock for each share of U.S.
Office Products Common Stock. The
F-7
WORKFLOW MANAGEMENT, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS (CONTINUED)
actual distribution ratio will be determined prior to effectiveness of the
Registration Statement of which this Prospectus is a part, and is expected to be
less than one share of Company Common Stock for every one share of U.S. Office
Products Common Stock.
F-8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Workflow Management, Inc.:
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of Workflow Management, Inc. (the
"Company") and its subsidiaries at April 30, 1996 and April 26, 1997, and the
results of their operations and their cash flows for the fiscal year ended
December 31, 1995, the four months ended April 30, 1996 and the fiscal year
ended April 26, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Hano Document Printers, Inc. ("Hano"), United Envelope Co., Inc. and its
affiliate, Rex Envelope Co. Inc. ("United") and Huxley Envelope Corporation
("Huxley"), wholly-owned subsidiaries, which statements reflect total revenues
for the year ended December 31, 1995 of $31,299,000, $81,917,000 and
$18,868,000, respectively. Those statements were audited by other auditors whose
reports thereon have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Hano, United and Huxley, is
based solely on the reports of the other auditors. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
February 10, 1998
F-9
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Workflow Management, Inc.:
We have audited the accompanying consolidated statements of income,
stockholder's equity and cash flows of Workflow Management, Inc. and
subsidiaries (the "Company") for the year ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial
statements of United Envelope Co., Inc. and its affiliates, Rex Envelope Co.,
Inc. ("United"), and Huxley Envelope Corporation ("Huxley"), wholly owned
subsidiaries, which statements reflect total revenues constituting 46.3 percent
of the consolidated total for the year ended December 31, 1994. Those statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for United and Huxley, is
based solely on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Workflow
Management, Inc. and subsidiaries for the year ended December 31, 1994 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
February 17, 1998
F-10
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
of Hano Document Printers, Inc.:
We have audited the balance sheet of Hano Document Printers, Inc. as of
December 31, 1995 and the related statements of income, stockholders' equity and
cash flows for the year then ended, which are not included herein. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hano Document Printers, Inc.
as of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
August 28, 1996
F-11
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
United Envelope Co., Inc.
We have audited the combined balance sheets of United Envelope Co., Inc. and
its affiliate, Rex Envelope Co., Inc., as at December 31, 1995 and 1994, and the
related combined statements of income and retained earnings and cash flows for
the years then ended (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As referred to in Note A on "Principles of Combination," the companies,
whose financial statements are combined, are related through common ownership
and control. In addition, each has pledged certain assets and guaranteed
long-term indebtedness of the other as described in the notes to financial
statements. In view of their close operating and financial relationship, the
preparation of combined financial statements was considered appropriate. The
combined statements, however, do not refer to a legal entity and neither of the
companies guarantees trade obligations of the other.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of United
Envelope Co., Inc. and its affiliate as at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
HERTZ, HERSON & COMPANY, LLP
New York, New York
March 6, 1996
F-12
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Huxley Envelope Corporation
Industrial Park Blvd.
Mt. Pocono Industrial Park
Mt. Pocono, PA 18344
We have audited the accompanying balance sheets of Huxley Envelope
Corporation as at December 31, 1995 and 1994, and the related statements of
income and retained earnings (accumulated deficit) and cash flows for the years
then ended (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Huxley Envelope Corporation
as at December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
HERTZ, HERSON & COMPANY LLP
New York, New York
March 4, 1996
F-13
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
---------- ---------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 1,324 $ 2,168 $ 385
Accounts receivable, less allowance for doubtful accounts of $1,993,
$1,831 and $2,808, respectively......................................... 50,942 50,917 55,334
Inventories............................................................... 23,815 26,990 28,216
Prepaid expenses and other current assets................................. 3,314 3,402 2,454
---------- ---------- -----------
Total current assets.................................................. 79,395 83,477 86,389
Property and equipment, net................................................. 31,647 33,119 32,668
Intangible assets, net...................................................... 879 913 2,259
Other assets................................................................ 6,028 7,599 8,387
---------- ---------- -----------
Total assets.......................................................... $ 117,949 $ 125,108 $ 129,703
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term debt........................................................... $ 23,515 $ 3,681 $ 4,259
Short-term payable to U.S. Office Products................................ 23,622 22,239
Accounts payable.......................................................... 22,163 27,031 25,346
Accrued compensation...................................................... 4,752 4,173 3,742
Other accrued liabilities................................................. 5,587 7,961 8,126
---------- ---------- -----------
Total current liabilities............................................. 56,017 66,468 63,712
Long-term debt.............................................................. 28,108 6,034 5,660
Long-term payable to U.S. Office Products................................... 20,891 21,955
Deferred income taxes....................................................... 4,704 4,045 3,638
Other long-term liabilities................................................. 121 19
---------- ---------- -----------
Total liabilities..................................................... 88,829 97,559 94,984
---------- ---------- -----------
Commitments and contingencies
Stockholder's equity:
Divisional equity......................................................... 11,790 11,313 13,425
Cumulative translation adjustment......................................... 352 97 42
Retained earnings......................................................... 16,978 16,139 21,252
---------- ---------- -----------
Total stockholder's equity............................................ 29,120 27,549 34,719
---------- ---------- -----------
Total liabilities and stockholder's equity............................ $ 117,949 $ 125,108 $ 129,703
---------- ---------- -----------
---------- ---------- -----------
See accompanying notes to consolidated financial statements.
F-14
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
FOR THE
FOR THE FOR THE FOUR FISCAL FOR THE SIX
YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED
-------------------------- ------------- ------------- ------------------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26, OCTOBER 25,
1994 1995 1996 1997 1996 1997
------------ ------------ ------------- ------------- ----------- -----------
(UNAUDITED)
Revenues............................ $ 154,193 $ 309,426 $ 114,099 $ 334,220 $ 161,798 $ 173,347
Cost of revenues.................... 114,885 234,959 82,998 243,179 117,563 127,547
------------ ------------ ------------- ------------- ----------- -----------
Gross profit.................. 39,308 74,467 31,101 91,041 44,235 45,800
Selling, general and administrative
expenses.......................... 32,020 62,012 22,485 70,949 33,500 35,983
Non-recurring acquisition costs..... 5,006
------------ ------------ ------------- ------------- ----------- -----------
Operating income.............. 7,288 12,455 8,616 15,086 10,735 9,817
Other (income) expense:
Interest expense.................. 2,048 5,370 1,676 4,827 2,250 1,390
Interest income................... (18) (25)
Other............................. 186 62 (151) 632 622 (166)
------------ ------------ ------------- ------------- ----------- -----------
Income before provision for (benefit
from) income taxes and
extraordinary items............... 5,054 7,023 7,109 9,652 7,863 8,593
Provision for (benefit from) income
taxes............................. 379 (33) 1,351 3,591 1,708 3,480
------------ ------------ ------------- ------------- ----------- -----------
Income before extraordinary items... 4,675 7,056 5,758 6,061 6,155 5,113
Extraordinary items--losses on early
terminations of credit facilities,
net of income taxes............... 700 798
------------ ------------ ------------- ------------- ----------- -----------
Net income.......................... $ 4,675 $ 6,356 $ 5,758 $ 5,263 $ 6,155 $ 5,113
------------ ------------ ------------- ------------- ----------- -----------
------------ ------------ ------------- ------------- ----------- -----------
Unaudited pro forma net income
before extraordinary items (see
Note 8)........................... $ 2,906 $ 5,111 $ 4,151 $ 3,687 $ 4,311 $ 5,113
------------ ------------ ------------- ------------- ----------- -----------
------------ ------------ ------------- ------------- ----------- -----------
See accompanying notes to consolidated financial statements.
F-15
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
CUMULATIVE TOTAL
DIVISIONAL TRANSLATION RETAINED STOCKHOLDER'S
EQUITY ADJUSTMENT EARNINGS EQUITY
----------- ------------- ----------- -------------
Balance at December 31, 1993................................... $ 4,239 $ $ 7,436 $ 11,675
Cash dividends at Pooled Companies........................... (3,461) (3,461)
Net income................................................... 4,675 4,675
----------- ----- ----------- -------------
Balance at December 31, 1994................................... 4,239 8,650 12,889
Transactions of Pooled Companies:
Issuance of Pooled Company common stock in conjunction with
acquisition.............................................. 7,451 7,451
Capital contributions...................................... 100 100
Cash dividends............................................. (2,465) (2,465)
Cumulative translation adjustment............................ 388 388
Net income................................................... 6,356 6,356
----------- ----- ----------- -------------
Balance at December 31, 1995................................... 11,790 388 12,541 24,719
Cash dividends at Pooled Companies........................... (1,321) (1,321)
Cumulative translation adjustment............................ (36) (36)
Net income................................................... 5,758 5,758
----------- ----- ----------- -------------
Balance at April 30, 1996...................................... 11,790 352 16,978 29,120
Transactions of Pooled Companies:
Retirement of common stock................................. (477) (477)
Cash dividends............................................. (6,102) (6,102)
Cumulative translation adjustment............................ (255) (255)
Net income................................................... 5,263 5,263
----------- ----- ----------- -------------
Balance at April 26, 1997...................................... 11,313 97 16,139 27,549
Unaudited data:
Issuance of U.S. Office Products Company common stock in
conjunction with acquisition............................... 2,112 2,112
Cumulative translation adjustment............................ (55) (55)
Net income................................................... 5,113 5,113
----------- ----- ----------- -------------
Balance at October 25, 1997 (unaudited)........................ $ 13,425 $ 42 $ 21,252 $ 34,719
----------- ----- ----------- -------------
----------- ----- ----------- -------------
See accompanying notes to consolidated financial statements.
F-16
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE FOR THE SIX
FOR THE FOUR FISCAL MONTHS
FOR THE YEAR ENDED MONTHS ENDED YEAR ENDED ENDED
--------------------------- ------------- ------------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26,
1994 1995 1996 1997 1996
------------- ------------ ------------- ------------- -----------
(UNAUDITED)
Cash flows from operating activities:
Net income......................................... $ 4,675 $ 6,356 $ 5,758 $ 5,263 $ 6,155
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............ 1,921 5,890 3,583 8,147 3,972
Non-recurring acquisition costs.................. 5,006
Deferred income taxes............................ (660)
Extraordinary loss............................... 700 798
Other............................................ 92 122
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable............................ (4,607) (7,039) 3,098 25 649
Inventory...................................... 370 1,884 302 (3,175) (458)
Prepaid expenses and other current assets...... (720) (284) (354) 258 1,401
Accounts payable............................... 4,140 1,541 (339) 4,643 1,729
Accrued liabilities............................ 202 1,942 (930) 1,061 50
------------- ------------ ------------- ------------- -----------
Net cash provided by operating activities.... 6,073 11,112 11,118 21,366 13,498
------------- ------------ ------------- ------------- -----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received.... (37,859)
Payments of non-recurring acquisition costs........ (4,100)
Additions to property and equipment, net of
disposals........................................ (1,716) (5,675) (4,423) (8,938) (5,485)
Cash received on the sale of property and
equipment........................................ 2,033
Other.............................................. (440) 1,147 (2,739) 541
------------- ------------ ------------- ------------- -----------
Net cash used in investing activities........ (123) (42,387) (4,423) (15,777) (4,944)
------------- ------------ ------------- ------------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 1,269 65,218 82 1,178 372
Payments of long-term debt......................... (4,194) (4,710) (23,135) (3,336)
Proceeds from (payments of) short-term debt, net... (134) (24,684) (5,844) (20,343) (3,378)
Payment to terminate credit facility............... (579) (311)
Payments of dividends at Pooled Companies.......... (2,266) (3,909) (1,321) (6,141) (2,847)
Retirement of common stock......................... (477)
Capital contributed by stockholders of Pooled
Company.......................................... 100
Advances from (to) U.S. Office Products............ 44,513
------------- ------------ ------------- ------------- -----------
Net cash provided by (used in) financing
activities................................. (5,325) 31,436 (7,083) (4,716) (9,189)
------------- ------------ ------------- ------------- -----------
Effect of exchange rates on cash and cash
equivalents........................................ 388 (29) (4)
------------- ------------ ------------- ------------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 625 549 (388) 844 (639)
Cash and cash equivalents at beginning of period..... 538 1,163 1,712 1,324 1,324
------------- ------------ ------------- ------------- -----------
Cash and cash equivalents at end of period........... $ 1,163 $ 1,712 $ 1,324 $ 2,168 $ 685
------------- ------------ ------------- ------------- -----------
------------- ------------ ------------- ------------- -----------
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 2,349 $ 2,703 $ 794 $ 2,063 $ 558
Income taxes paid.................................. $ 437 $ 560 $ 674 $ 3,390 $ 1,078
OCTOBER 25,
1997
-----------
Cash flows from operating activities:
Net income......................................... $ 5,113
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............ 3,145
Non-recurring acquisition costs..................
Deferred income taxes............................
Extraordinary loss...............................
Other............................................
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable............................ (3,274)
Inventory...................................... (1,147)
Prepaid expenses and other current assets...... 197
Accounts payable............................... (1,682)
Accrued liabilities............................ (775)
-----------
Net cash provided by operating activities.... 1,577
-----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received.... 114
Payments of non-recurring acquisition costs........ (906)
Additions to property and equipment, net of
disposals........................................ (2,456)
Cash received on the sale of property and
equipment........................................
Other..............................................
-----------
Net cash used in investing activities........ (3,248)
-----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 1,709
Payments of long-term debt......................... (1,802)
Proceeds from (payments of) short-term debt, net... 570
Payment to terminate credit facility...............
Payments of dividends at Pooled Companies..........
Retirement of common stock.........................
Capital contributed by stockholders of Pooled
Company..........................................
Advances from (to) U.S. Office Products............ (600)
-----------
Net cash provided by (used in) financing
activities................................. (123)
-----------
Effect of exchange rates on cash and cash
equivalents........................................ 11
-----------
Net increase (decrease) in cash and cash
equivalents........................................ (1,783)
Cash and cash equivalents at beginning of period..... 2,168
-----------
Cash and cash equivalents at end of period........... $ 385
-----------
-----------
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 364
Income taxes paid.................................. $ 2,063
F-17
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method in the year ended December
31, 1995 and for the six months ended October 25, 1997. The fair values of the
assets and liabilities of the acquired companies at the dates of the
acquisitions are presented as follows:
FOR THE FOR THE SIX
FOR THE FOUR FISCAL MONTHS
FOR THE YEAR ENDED MONTHS ENDED YEAR ENDED ENDED
---------------------------- ------------- ------------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, OCTOBER 26,
1994 1995 1996 1997 1996
------------- ------------- ------------- ------------- -----------
(UNAUDITED)
Accounts receivable.................................. $ $ 19,106 $ $ $
Inventories.......................................... 17,436
Prepaid expenses and other current assets............ 578
Property and equipment............................... 21,466
Intangible assets....................................
Other assets......................................... 4,499
Accounts payable..................................... (9,651)
Accrued liabilities.................................. (3,700)
Long-term debt.......................................
Other long-term liabilities and minority interest.... (4,424)
------------- ------------- ------------- ------------- -----------
Net assets acquired............................ $ $ 45,310 $ $ $
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
The acquisitions were funded as follows:
Common stock......................................... $ $ 7,451 $ $ $
Cash paid, net of cash received...................... 37,859
------------- ------------- ------------- ------------- -----------
Total............................................ $ $ 45,310 $ $ $
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
OCTOBER 25,
1997
-----------
Accounts receivable.................................. $ 1,109
Inventories.......................................... 41
Prepaid expenses and other current assets............ 26
Property and equipment............................... 84
Intangible assets.................................... 1,445
Other assets.........................................
Accounts payable..................................... (332)
Accrued liabilities.................................. (365)
Long-term debt....................................... (10)
Other long-term liabilities and minority interest....
-----------
Net assets acquired............................ $ 1,998
-----------
-----------
The acquisitions were funded as follows:
Common stock......................................... $ 2,112
Cash paid, net of cash received...................... (114)
-----------
Total............................................ $ 1,998
-----------
-----------
See accompanying notes to consolidated financial statements.
F-18
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--BACKGROUND
Workflow Management, Inc. (the "Company") is a Delaware corporation which is
a wholly-owned subsidiary of U.S. Office Products Company ("U.S. Office
Products"). On January 13, 1998, U.S. Office Products announced its intention to
spin-off its Print Management Division as an independent publicly owned company.
This transaction is expected to be effected through the distribution of shares
of the Company to U.S. Office Products shareholders effective on or about April
25, 1998 (the "Distribution"). Prior to the Distribution, U.S. Office Products
plans to contribute its equity interests in certain wholly-owned subsidiaries
associated with U.S. Office Products' Print Management Division to the Company.
U.S. Office Products and the Company will enter into a number of agreements to
facilitate the Distribution and the transition of the Company to an independent
business enterprise.
The Print Management Division was created by U.S. Office Products in January
1997 and completed seven business combinations accounted for under the
pooling-of-interests method during the period from January 1997 to April 1997
(the "Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.
NOTE 2--BASIS OF PRESENTATION
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. In cases involving
assets and liabilities not specifically identifiable to any particular business
of U.S. Office Products, only those assets and liabilities expected to be
transferred to the Company prior to the Distribution were included in the
Company's separate consolidated balance sheet. With the exception of interest
expense, 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 which were not directly related to these businesses
including certain corporate executives' salaries, accounting and legal fees,
departmental costs for accounting, finance, legal, purchasing, marketing, human
resources as well as other general overhead costs. These allocations were based
on a variety of factors, dependent upon the nature of the costs being allocated,
including revenues, number and size of acquisitions and number of employees.
Management believes these allocations were made on a reasonable basis.
U.S. Office Products uses a centralized approach to cash management and the
financing of its operations. As a result, minimal amounts of cash and cash
equivalents and an agreed upon amount of debt will be allocated to the Company
at the time of the Distribution. The consolidated statement of income does not
include an allocation of interest expense on all debt allocated to the Company.
See Note 7 for further discussion of interest expense.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-19
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHANGE IN FISCAL YEAR
Prior to their respective dates of acquisition by U.S. Office Products, the
Pooled Companies reported results on years ending on December 31. Upon
acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997 ("fiscal 1997"), the Pooled Companies changed their year-ends
from December 31 to conform to U.S. Office Products' fiscal year, which ends on
the last Saturday in April. A four month fiscal transition period from January
1, 1996 through April 30, 1996 has been presented for the Company to conform its
fiscal year-end.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method, and non-compete agreements.
Substantially all goodwill is amortized on a straight line basis over an
estimated useful life of 40 years. Management periodically evaluates the
recoverability of goodwill, which would be adjusted for a permanent decline in
value, if any, by comparing anticipated undiscounted future cash flows from
F-20
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
operations to net book value. Intangible assets associated with non-compete
agreements are being amortized over their respective terms.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholders' equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value.
INCOME TAXES
As a division of U.S. Office Products, the Company does not file separate
federal income tax returns but rather is included in the federal income tax
returns filed by U.S. Office Products and its subsidiaries from the respective
dates that the entities within the Company were acquired by U.S. Office
Products. For purposes of the consolidated financial statements, the Company's
allocated share of U.S. Office Products' income tax provision was based on the
"separate return" method. Certain companies acquired in pooling-of-interests
transactions elected to be taxed as Subchapter S corporations, and accordingly,
no federal income taxes were recorded by those companies for periods prior to
their acquisition by U.S. Office Products.
TAXES ON UNDISTRIBUTED EARNINGS
No provision is made for U.S. income taxes on earnings of the Company's
Canadian subsidiary company which the Company controls but does not include in
the consolidated federal income tax return since it is management's practice and
intent to permanently reinvest the earnings of this subsidiary.
REVENUE RECOGNITION
Revenue is recognized upon the delivery of products or upon the completion
of services provided to customers as no additional obligations to the customers
exist. Returns of the Company's product are considered immaterial.
COST OF REVENUES
Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to cost of revenues. Delivery and occupancy costs
are included in cost of revenues.
NON-RECURRING ACQUISITION COSTS
Non-recurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include accounting, legal, and investment banking fees, real
estate and environmental assessments and appraisals, various regulatory fees and
recognition of transaction related obligations. Generally accepted accounting
principles require
F-21
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Company to expense all acquisition costs (both those paid by the Company and
those paid by the sellers of the acquired companies) related to business
combinations accounted for under the pooling-of-interests method.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS"). SFAS 128 simplifies the standards for computing EPS and makes the
presentation comparable to international EPS standards by replacing the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement.
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 intends to adopt SFAS No. 128 in the fiscal year
ended April 25, 1998. The implementation of SFAS No. 128 is not expected to have
a material effect on the Company's earnings per share as determined under
current accounting rules. Historical earnings per share has not been presented
as such amounts are not deemed meaningful due to the significant change in the
Company's capital structure that will occur on the consummation of the
Distribution.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for 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 that are required to be recgonized 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. The Company intends to adopt SFAS No. 130 in
fiscal 1999.
UNAUDITED INTERIM FINANCIAL DATA
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of October 25, 1997 and the results
of operations and of cash flows for the six months ended October 26, 1996 and
October 25, 1997, as presented in the accompanying unaudited consolidated
financial data.
NOTE 4--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In fiscal 1997, the Company issued U.S. Office Products common stock to
acquire the Pooled Companies. The Company's consolidated financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented. Prior to being acquired by U.S. Office Products, the Pooled
Companies all reported on years ending on December 31. Upon completion of the
acquisitions of the Pooled Companies, their year-ends were changed to U.S.
Office Products' year-end of the last Saturday in April.
F-22
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The following presents the separate results, in each of the periods
presented, of the Company (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the dates
on which they were acquired:
WORKFLOW POOLED
MANAGEMENT, INC. COMPANIES COMBINED
---------------- ----------- ----------
For the year ended December 31, 1994
Revenues............................................................. $ $ 154,193 $ 154,193
Net income........................................................... $ $ 4,675 $ 4,675
For the year ended December 31, 1995
Revenues............................................................. $ $ 309,426 $ 309,426
Net income........................................................... $ $ 6,356 $ 6,356
For the four months ended April 30, 1996
Revenues............................................................. $ $ 114,099 $ 114,099
Net income........................................................... $ $ 5,758 $ 5,758
For the year ended April 26, 1997
Revenues............................................................. $ 29,373 $ 304,847 $ 334,220
Net income (loss).................................................... $ (228) $ 5,491 $ 5,263
For the six months ended October 26, 1996 (unaudited):
Revenues............................................................. $ $ 161,798 $ 161,798
Net income........................................................... $ $ 6,155 $ 6,155
For the six months ended October 25, 1997 (unaudited):
Revenues............................................................. $ 173,347 $ $ 173,347
Net income........................................................... $ 5,113 $ $ 5,113
PURCHASE METHOD
In 1995, one of the Pooled Companies made an acquisition accounted for under
the purchase method for an aggregate purchase price of $45,310, consisting of
$37,859 of cash and common stock with a market value of $7,451. The results of
this acquisition have been included in the Company's results from its date of
acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the year ended December 31, 1995 and includes the Company's
consolidated financial statements, which give retroactive effect to the
acquisitions of the Pooled Companies for all periods presented, and the results
of the purchase acquisition completed in 1995 as if it had been made at the
beginning of 1995. The results presented below include certain pro forma
adjustments to reflect the amortization of intangible assets, adjustments in
executive compensation and the inclusion of a federal income tax provision on
all earnings:
YEAR ENDED
DECEMBER 31, 1995
-----------------
Revenues................................................................... $ 319,527
Income before extraordinary items.......................................... 5,303
Net income................................................................. 4,603
F-23
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The unaudited 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 occurred at the beginning of 1995 or the results
which may occur in the future.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
APRIL 30, APRIL 26,
1996 1997
---------- ----------
Land.................................................................. $ 1,589 $ 1,022
Buildings............................................................. 3,144 4,705
Furniture and fixtures................................................ 34,207 42,394
Warehouse equipment................................................... 3,624 1,013
Equipment under capital leases........................................ 589 916
Leasehold improvements................................................ 2,167 2,933
---------- ----------
45,320 52,983
Less: Accumulated depreciation........................................ (13,673) (19,864)
---------- ----------
Net property and equipment............................................ $ 31,647 $ 33,119
---------- ----------
---------- ----------
Depreciation expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, and the fiscal year ended April 26, 1997 was
$1,904, $4,720, $3,174 and $7,466, respectively.
NOTE 6--INTANGIBLE ASSETS
Intangible assets consist of the following:
APRIL 30, APRIL 26, OCTOBER 25,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
Goodwill.................................................... $ 496 $ 496 $ 1,930
Non-compete agreements...................................... 287 322 322
Other....................................................... 192 507 506
----- ----------- -----------
975 1,325 2,758
Less: Accumulated amortization.............................. (96) (412) (499)
----- ----------- -----------
Net intangible assets................................. $ 879 $ 913 $ 2,259
----- ----------- -----------
----- ----------- -----------
Amortization expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, fiscal year ended April 26, 1997 and the six
months ended October 25, 1997 was $17, $74, $44, $204 and $99, respectively.
F-24
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--CREDIT FACILITIES
SHORT-TERM DEBT
Short-term debt consists of the following:
APRIL 30, APRIL 26,
1996 1997
--------- ---------
Credit facilities with banks, average interest rate of 8.4% at
April 30, 1996........................................................ $ 19,201 $
Current maturities of long-term debt.................................... 4,314 3,681
--------- ---------
Total short-term debt............................................. $ 23,515 $ 3,681
--------- ---------
--------- ---------
LONG-TERM DEBT
Long-term debt consists of the following:
APRIL 30, APRIL 26,
1996 1997
--------- ---------
Notes payable, secured by certain assets of the Company, interest rates
ranging from 7.5% to 13.4%............................................ $ 32,037 $ 9,283
Capital lease obligations............................................... 385 432
--------- ---------
32,422 9,715
Less: Current maturities of long-term debt.............................. (4,314) (3,681)
--------- ---------
Total long-term debt.............................................. $ 28,108 $ 6,034
--------- ---------
--------- ---------
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
1998............................................................... $ 3,681
1999............................................................... 5,953
2000............................................................... 36
2001............................................................... 26
2002............................................................... 19
Thereafter.........................................................
---------
Total maturities of long-term debt........................... $ 9,715
---------
---------
F-25
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--CREDIT FACILITIES (CONTINUED)
PAYABLE TO U.S. OFFICE PRODUCTS
The long-term payable to U.S. Office Products primarily represents payments
made by U.S. Office Products on behalf of the Company and a reasonable
allocation by U.S. Office Products of certain general corporate expenses. No
interest has been allocated to the Company on the outstanding payable. An
analysis of the activity in this account is as follows:
Balance at April 30, 1996.......................................... $
Payments of long-term debt of Pooled Companies upon acquisition.... 17,852
Payments of acquisition costs...................................... 2,636
Allocated corporate expenses....................................... 320
Normal operating costs paid by U.S. Office Products................ 83
---------
Balance at April 26, 1997.......................................... $ 20,891
---------
---------
The average outstanding long-term payable to U.S. Office Products during the
fiscal year ended April 26, 1997 was $1,775.
U.S. Office Products has charged the Company interest on the short-term
payable to U.S. Office Products at the prime rate in effect at the time. The
short-term payable to U.S. Office Products was incurred by the Company primarily
as a result of U.S. Office Products repaying short-term debt outstanding at the
businesses acquired by U.S. Office Products at or soon after the respective
dates of acquisition and through the centralized cash management system, which
involves daily advances or sweeps of cash to keep the cash balance at or near
zero on a daily basis. U.S. Office Products has not charged the Company interest
on the long-term payable to U.S. Office Products. The Company's financial
statements include allocations of interest expense from U.S. Office Products
totaling $266 during the year ended April 26, 1997. If the Company had been
charged interest on all debt allocated by U.S. Office Products during fiscal
1997, interest expense would have totaled $393.
The Company expects that the Distribution Agreement with U.S. Office
Products will call for an allocation of $44.7 million of debt by U.S. Office
Products resulting in the forgiveness of $23.7 million of debt at October 25,
1997, which would be reflected in the financial statements as a contribution of
capital by U.S. Office Products. The Company intends to enter into a credit
facility concurrently with the Distribution which will contain certain financial
and other covenants, including maintenance of certain financial tests and
ratios, limitations on capital expenditures and restrictions on the incurrence
of debt or liens, the sale of assets, the payment of dividends, transactions
with affiliates and other transactions.
F-26
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--INCOME TAXES
Domestic and foreign income before provision for income taxes and
extraordinary items consist of the following:
FOR THE
FOR THE YEAR ENDED FOR THE FOUR FISCAL
---------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
------------- ------------- --------------- -------------
Domestic.............................................. $ 5,054 $ 5,582 $ 4,599 $ 3,740
Foreign............................................... 1,441 2,510 5,912
------ ------ ------ ------
Total............................................. $ 5,054 $ 7,023 $ 7,109 $ 9,652
------ ------ ------ ------
------ ------ ------ ------
The provision for income taxes consists of:
FOR THE
FOR THE YEAR ENDED FOR THE FOUR FISCAL
-------------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- --------------- -------------
Income taxes currently payable:
Federal............................................. $ $ $ $ 97
State............................................... 379 376 460 628
Foreign............................................. (409) 891 3,526
----- --- ------ ------
379 (33) 1,351 4,251
----- --- ------ ------
Deferred income tax expense (benefit)................. (660)
----- --- ------ ------
Total provision for income taxes.................. $ 379 $ (33) $ 1,351 $ 3,591
----- --- ------ ------
----- --- ------ ------
Deferred taxes are comprised of the following:
APRIL 30, APRIL 26,
1996 1997
--------- ---------
Current deferred tax assets:
Inventory.................................................................................. $ $ 145
Allowance for doubtful accounts............................................................ 497
Accrued liabilities........................................................................ 168
--------- ---------
Total current deferred tax assets........................................................ 810
--------- ---------
Long-term deferred tax liabilities:
Property and equipment..................................................................... (1,238)
Intangible assets.......................................................................... 36
Other...................................................................................... (4,704) (3,653)
--------- ---------
Total long-term deferred tax liabilities................................................. (4,704) (4,855)
--------- ---------
Net deferred tax liability............................................................... $ (4,704) $ (4,045)
--------- ---------
--------- ---------
F-27
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
FOR THE YEAR ENDED FOR THE FOUR FOR THE FISCAL
-------------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- --------------- ---------------
U.S. federal statutory rate........................... 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit............................................. 7.5 5.4 6.5 6.8
Subchapter S corporation income not subject to
corporate level taxation............................ (35.0) (27.7) (22.6) (24.6)
Foreign earnings not subject to U.S. taxes............ (7.3) (12.4) (21.4)
Nondeductible acquisition costs....................... 11.8
Foreign taxes......................................... 12.5 25.6
Other................................................. (5.9) 4.0
----- ----- ----- -----
Effective income tax rate............................. 7.5% (0.5)% 19.0% 37.2%
----- ----- ----- -----
----- ----- ----- -----
Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the specific Pooled Companies had been subject to
federal income taxes for the entire periods presented.
FOR THE
FOR THE YEAR ENDED FOR THE FOUR FISCAL
---------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
------------- ------------- --------------- -------------
Income before extraordinary items per consolidated
statement of income................................. $ 4,675 $ 7,056 $ 5,758 $ 6,061
Pro forma income tax provision adjustment............. 1,769 1,945 1,607 2,374
------ ------ ------ ------
Pro forma income before extraordinary items........... $ 2,906 $ 5,111 $ 4,151 $ 3,687
------ ------ ------ ------
------ ------ ------ ------
F-28
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9--LEASE COMMITMENTS
The Company leases various types of warehouse and office facilities and
equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:
CAPITAL OPERATING
LEASES LEASES
----------- -----------
1998......................................................................................... $ 216 $ 3,915
1999......................................................................................... 150 3,751
2000......................................................................................... 67 3,093
2001......................................................................................... 29 2,612
2002......................................................................................... 22 2,334
Thereafter................................................................................... 3,467
----- -----------
Total minimum lease payments................................................................. 484 $ 19,172
-----------
-----------
Less: Amounts representing interest.......................................................... (52)
-----
Present value of net minimum lease payments.................................................. $ 432
-----
-----
Rent expense for all operating leases for the years ended December 31, 1994
and 1995, the four months ended April 30, 1996, and the fiscal year ended April
26, 1997 was $2,112, $6,137, $1,844, and $4,928, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996 or April
26, 1997 related to these agreements, as no change of control has occurred.
DISTRIBUTION
On or immediately after the Distribution, the Company expects to have a
credit facility in place. The terms of the credit facility are expected to
contain customary covenants including financial covenants. The Company plans to
use a portion of the proceeds from the credit facility to repay certain amounts
payable to U.S. Office Products.
On or before the date of the Distribution, the Company, U.S. Office Products
and the other Spin-Off Companies will enter into the Distribution Agreement, the
Tax Allocation Agreement, and the Employee Benefits Agreement, and the Spin-Off
Companies will enter into the Tax Indemnification Agreement, and
F-29
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
may enter into other agreements, including agreements relating to referral of
customers to one another. These agreements are expected to provide, among other
things, for U.S. Office Products and the Company to indemnify each other from
tax and other liabilities relating to their respective businesses prior to and
following the Workflow Distribution. Certain of the obligations of the Company
and the other Spin-Off Companies to indemnify U.S. Office Products are joint and
several. Therefore, if one of the other Spin-Off Companies fails to satisfy its
indemnification obligations to U.S. Office Products when such a loss occurs, the
Company may be required to reimburse U.S. Office Products for all or a portion
of the losses that otherwise would have been allocated to other Spin-Off
Companies. In addition, the agreements will allocate liabilities, including
general corporate and securities liabilities of U.S. Office Products not
specifically related to the Company's business, between U.S. Office Products and
each Spin-Off Company.
NOTE 11--EMPLOYEE BENEFIT PLANS
Effective September 1, 1996, the Company implemented the U.S. Office
Products 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service.
Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For 1994, 1995, the four months ended
April 30, 1996 and fiscal 1997, the subsidiaries incurred expenses totaling
$444, $602, $179 and $481, respectively, related to these plans.
NOTE 12--STOCKHOLDER'S EQUITY
EMPLOYEE STOCK PLANS
Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan covering employees of
U.S. Office Products. U.S. Office Products, as the sole stockholder of the
Company prior to distribution, has approved a new stock option plan for the
Company. Upon Distribution, the Company expects to replace the options to
purchase shares of common stock of U.S. Office Products held by employees with
options to purchase shares of common stock of the Company. At April 26, 1997,
there were approximately 402,290 options to purchase shares of U.S. Office
Products common stock held by Company employees.
Under the Ledecky Services Agreement, the Board of Directors of U.S. Office
Products has agreed that Mr. Ledecky will receive a stock option for Company
Common Stock from the Company as of the date of the Distribution. The Board
intends the option to be compensation for Mr. Ledecky's services as a director
of the Company, and certain services as an employee of the Company. The option
will cover up to 7.5% of the outstanding Company Common Stock determined as of
the date of the Distribution, with no anti-dilution provisions in the event of
issuance of additional shares of Common Stock (other than with respect to stock
splits or reverse stock splits). The option will have a per share exercise price
equal to the price of the first trade on the day the Company's Common Stock is
first publicly traded.
F-30
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 13--SEGMENT REPORTING
GEOGRAPHIC SEGMENTS
The following table sets forth information as to the Company's operations in
its different geographic segments:
UNITED
STATES CANADA TOTAL
---------- ---------- ----------
For the year ended December 31, 1994:
Revenues................................................................... $ 154,193 $ $ 154,193
Operating income........................................................... 7,288 7,288
Identifiable assets at year-end............................................ 51,357 51,357
For the year ended December 31, 1995:
Revenues................................................................... $ 196,922 $ 112,504 $ 309,426
Operating income........................................................... 7,859 4,596 12,455
Identifiable assets at year-end............................................ 64,301 56,329 120,630
For the four months ended April 30, 1996:
Revenues................................................................... $ 73,047 $ 41,052 $ 114,099
Operating income........................................................... 3,435 5,181 8,616
Identifiable assets at period end.......................................... 66,255 51,694 117,949
For the fiscal year ended April 26, 1997:
Revenues................................................................... $ 212,749 $ 121,471 $ 334,220
Operating income........................................................... 7,010 8,076 15,086
Identifiable assets at year-end............................................ 72,854 52,254 125,108
F-31
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data for the
year ended December 31, 1995 and the fiscal year ended April 26, 1997.
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
Revenues.................................................. $ 65,497 $ 80,595 $ 79,815 $ 83,519 $ 309,426
Gross profit.............................................. 15,770 19,361 19,229 20,107 74,467
Operating income.......................................... 2,681 3,296 3,306 3,172 12,455
Net income................................................ 1,789 1,529 1,744 1,294 6,356
Pro forma income before extraordinary item (see Note 8)... 1,439 1,229 1,402 1,041 5,111
FISCAL YEAR ENDED APRIL 26, 1997
------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
Revenues.................................................. $ 79,798 $ 82,000 $ 82,966 $ 89,456 $ 334,220
Gross profit.............................................. 21,717 22,518 22,647 24,159 91,041
Operating income.......................................... 4,650 6,085 4,015 336 15,086
Net income (loss)......................................... 2,974 3,181 1,847 (2,739) 5,263
Pro forma income (loss) before extraordinary item
(see Note 8)............................................ 2,083 2,228 1,294 (1,918) 3,687
NOTE 15--SUBSEQUENT EVENTS
On January 13, 1998, U.S. Office Products announced its intention to
complete the Distribution described in Note 1. In addition, subsequent to April
26, 1997, the Company has completed one business combination accounted for under
the purchase method in exchange for U.S. Office Products common stock with a
market value on the date of acquisition of approximately $2,112. The results of
operations for the six months ended October 25, 1997 include the results of the
acquired company from its date of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the Distribution and acquisition described above
and one probable purchase acquisition had been consummated as of the beginning
of fiscal 1997. The results presented below include certain pro forma
adjustments to reflect the amortization of intangible assets, adjustments in
executive compensation and the inclusion of a federal income tax provision on
all earnings:
FISCAL YEAR
ENDED
APRIL 26, 1997
----------------
Revenues........................................................................................ $ 349,174
Income before extraordinary items............................................................... 10,834
The unaudited 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 occurred at the beginning of fiscal 1997 or the
results which may occur in the future.
F-32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Astrid Offset Corporation
In our opinion, the accompanying balance sheet and the related statements of
income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of Astrid Offset Corporation at July
31, 1997 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
February 6, 1998
F-33
ASTRID OFFSET CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
JULY 31, OCTOBER 31,
1997 1997
--------- -----------
(UNAUDITED)
ASSETS
Cash....................................................................................... $ 481 $ 412
Marketable securities...................................................................... 916 904
Accounts receivable........................................................................ 954 1,180
Prepaid expenses and other assets.......................................................... 74 102
Inventory.................................................................................. 241 237
--------- -----------
Total current assets................................................................. 2,666 2,835
Property and equipment, net................................................................ 1,695 1,582
Other assets............................................................................... 22
--------- -----------
Total assets......................................................................... $ 4,383 $ 4,417
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current maturities, long-term debt......................................................... $ 422 $ 271
Accounts payable........................................................................... 39 163
Accrued liabilities........................................................................ 149 56
Due to officer............................................................................. 55 58
--------- -----------
Total current liabilities............................................................ 665 548
Long-term debt............................................................................. 1,607 1,606
Deferred income taxes...................................................................... 140 145
--------- -----------
Total liabilities.................................................................... 2,412 2,299
Stockholder's equity:
Common stock, no par value, 10 shares authorized, issued and outstanding................. 14 14
Treasury stock........................................................................... (1,064) (1,064)
Retained earnings........................................................................ 3,021 3,168
--------- -----------
Total stockholder's equity........................................................... 1,971 2,118
--------- -----------
--------- -----------
Total liabilities and stockholder's equity........................................... $ 4,383 $ 4,417
--------- -----------
--------- -----------
The accompanying notes are an integral part of these financial statements.
F-34
ASTRID OFFSET CORPORATION
STATEMENT OF INCOME
(IN THOUSANDS)
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JULY 31, --------------------
1997 1996 1997
----------- --------- ---------
(UNAUDITED)
Sales............................................................................. $ 10,022 $ 2,400 $ 2,566
Cost of sales..................................................................... 5,850 1,306 1,378
----------- --------- ---------
Gross profit.................................................................... 4,172 1,094 1,188
Selling, general and administrative expenses...................................... 1,819 370 419
----------- --------- ---------
Operating income................................................................ 2,353 724 769
Other (income) expense:
Interest expense................................................................ 252 123 6
Interest income................................................................. (74) (10) (9)
Realized and unrealized (gains) losses.......................................... (257) (69) 13
----------- --------- ---------
Income before taxes on income..................................................... 2,432 680 759
Provision for city income taxes................................................... 87 11 19
----------- --------- ---------
Net income........................................................................ $ 2,345 $ 669 $ 740
----------- --------- ---------
----------- --------- ---------
Unaudited pro forma information (see Note 2):
Income before provision for income taxes........................................ $ 2,432 $ 680 $ 759
Pro forma Provision for income taxes............................................ 973 272 304
----------- --------- ---------
Pro forma net income.......................................................... $ 1,459 $ 408 $ 455
----------- --------- ---------
----------- --------- ---------
The accompanying notes are an integral part of these financial statements.
F-35
ASTRID OFFSET CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
TOTAL
COMMON TREASURY RETAINED STOCKHOLDER'S
STOCK STOCK EARNINGS EQUITY
--------- --------- --------- ------------
Balance, July 31, 1996............................................. $ 14 $ (1,064) $ 2,798 $ 1,748
Net income....................................................... 2,345 2,345
Distributions.................................................... (2,122) (2,122)
--------- --------- --------- ------------
Balance, July 31, 1997............................................. 14 (1,064) 3,021 1,971
Net income....................................................... 740 740
Distributions.................................................... (593) (593)
--------- --------- --------- ------------
Balance, October 31, 1997 (unaudited).............................. $ 14 $ (1,064) $ 3,168 $ 2,118
--------- --------- --------- ------------
--------- --------- --------- ------------
The accompanying notes are an integral part of these financial statements.
F-36
ASTRID OFFSET CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JULY 31, --------------------
1997 1996 1997
----------- --------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net income................................................................. $ 2,345 $ 669 $ 740
Adjustments to net income to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................ 475 76 135
Unrealized/realized (gain) loss on sale of marketable trading
securities............................................................. (257) (69) 13
Deferred income taxes.................................................. 32 4 5
Changes in operating assets and liabilities:
Marketable trading securities.......................................... 4 (1) (1)
Accounts receivable.................................................... (192) (506) (226)
Prepaid and other assets............................................... (54) (42) (28)
Inventory.............................................................. (26) (116) 4
Accounts payable and accrued liabilities............................... (155) (98) 31
Due to officer......................................................... (3) 3
----------- --------- ---------
Net cash provided by (used in) operating activities.................. 2,169 (83) 676
----------- --------- ---------
Cash flow from financing activities:
Principal payments on long-term debt....................................... (525) (85) (152)
Distributions to stockholder............................................... (2,122) (391) (593)
----------- --------- ---------
Net cash used in financing activities................................ (2,647) (476) (745)
----------- --------- ---------
Net decrease in cash......................................................... (478) (559) (69)
Cash and cash equivalents, beginning of year................................. 959 959 481
----------- --------- ---------
Cash and cash equivalents, end of year....................................... $ 481 $ 400 $ 412
----------- --------- ---------
----------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest..................................................... $ 74 $ 24 $ 27
Cash paid for taxes........................................................ $ 54 $ 13 $ 11
Supplemental disclosure of non-cash transaction:
Purchase of machinery and equipment for Note Payable....................... $ 1,550 $ 1,550
The accompanying notes are an integral part of these financial statements.
F-37
ASTRID OFFSET CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BUSINESS AND ORGANIZATION
Astrid Offset Corporation (the "Company") is a manufacturer and wholesale
vendor of sheet-fed offset printing and envelopes. The Company's sales are to
trade customers primarily in the greater New York City area.
On February 2, 1998, the Company entered into a Letter of Intent with U.S.
Office Products Company ("U.S. Office Products") for the potential sale of
Astrid Offset Corporation to U.S. Office Products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's financial statements are prepared on the accrual basis of
accounting, whereby revenues and related assets are generally recognized when
products are completed and shipped and expenses and related liabilities are
recognized when the obligations are incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the date of
purchase to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated using straight-line and accelerated
methods over their estimated useful lives of three to seven years.
INCOME TAXES
The Company has elected S-Corporation status as defined by the Internal
Revenue Code and states whereby the stockholder is taxed on his proportionate
share of the Company's taxable income. Therefore, no provision or liability for
federal income taxes has been included in the financial statements. The Company
is subject to New York City income tax which has been appropriately reflected in
the financial statements.
Deferred income taxes are provided in recognition of timing differences
between financial statements and tax reporting of income and expense items since
the Company files its New York City income tax returns on a cash basis.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for
F-38
ASTRID OFFSET CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes", as if the Company had been subject to federal income taxes for
the entire periods presented.
FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities as reflected in the financial
statements approximates fair value because of the short-term maturity of these
instruments. The carrying amounts of long-term debt approximates fair value.
MARKETABLE SECURITIES
The Company's marketable securities consist of investments in certain
equities and mutual funds and are classified as trading, accordingly, any
realized or unrelated gains and losses are recorded in the period incurred.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information for the three month periods ended October
31, 1996 and 1997 has been prepared from the unaudited financial records of the
Company and in the opinion of management, reflects all adjustments, consisting
only of normal recurring items, necessary for a fair presentation of the
financial position and results of operations and of cash flows for the interim
periods presented.
CONCENTRATIONS OF CREDIT RISKS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables are
not collateralized and accordingly, the Company performs ongoing credit
evaluations to reduce the risk of loss. At July 31, 1997, $515 of the accounts
receivable balance relates to one customer and its subsidiaries.
The Company maintains bank accounts at one financial institution. The
balances are insured by the Federal Deposit Insurance Corporation up to $100. At
July 31, 1997, the Company has no uninsured cash balances.
3. INVENTORY
Inventory consists of the following:
JULY 31,
1997
-----------
Raw materials........................................................................ $ 159
Work-in-process...................................................................... 82
-----
241
-----
-----
F-39
ASTRID OFFSET CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Machinery and equipment............................................. $ 4,699
Furniture and fixtures.............................................. 80
Computer equipment.................................................. 64
Leasehold improvements.............................................. 206
Delivery equipment.................................................. 31
---------
5,080
Accumulated depreciation............................................ (3,385)
---------
$ 1,695
---------
---------
Depreciation expense for the year ended July 31, 1997 was $304.
5. LONG-TERM DEBT
The long-term debt consists of the following:
JULY 31,
1997
---------
Instrument note to Summit Leasing Corp. payable in monthly installments of $9 including interest at 7.95%
per annum. Note is collateralized by Komori Lithrone two-color press, with note maturing March
1998. ................................................................................................. $ 70
Installment note to Komar Leasing Corp. payable in monthly installments of $25 including interest at 8.9%
per annum. Note is collateralized by Komori six-color press with the note maturing July 2004........... 1,385
Installment note to Emanuel Rosenbaum payable in monthly installments of $9 including interest at 10% per
annum. The note matures October 1997. ................................................................. 26
Note payable to Emanuel Rosenbaum due September 2000 with payment of interest only at 10% until September
1997, monthly payments of $17 thereafter. Note is secured by treasury stock. .......................... 548
---------
2,029
Current maturities....................................................................................... 422
---------
$ 1,607
---------
---------
F-40
ASTRID OFFSET CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
5. LONG-TERM DEBT (CONTINUED)
Principal payments required under long-term debt obligations are as follows:
1998................................................................ $ 422
1999................................................................ 372
2000................................................................ 409
2001................................................................ 268
2002-2004........................................................... 558
---------
$ 2,029
---------
---------
6. LEASE COMMITMENTS
In June 1997, the Company entered into a lease agreement for its primary
office facility. The lease terms requires annual payments of $384 (or $32
monthly) through 2007.
7. RELATED PARTY TRANSACTIONS
The Company's stockholder is the trustee for the profit sharing plan
maintained by the Company.
The Company's largest customer, United Envelope, is a subsidiary of U.S.
Office Products Company and represents $515 of the Company's July 31, 1997
accounts receivable balance.
8. TREASURY STOCK
In September 1990, the Company purchased common stock in the amount of
$1,064 from its former stockholder. The Company has a note outstanding in
connection with this treasury stock purchase.
9. EMPLOYEE BENEFIT PLAN
In April 1991, the Company established a profit sharing plan. Contributions
by the Company are discretionary and cannot exceed 15% of the total plan
compensation of all participants.
10. SUBSEQUENT EVENTS
Shareholder distributions of $595 were made during the period of November 1,
1997, through January 31, 1998.
F-41
[LOGO]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses payable by the Company
in connection with the issuance and distribution of the Common Stock. All of
such expenses, except the Securities and Exchange Commission registration fee,
are estimated:
SEC Registration Fee............................................................... $
NASD Fee........................................................................... $ *
The Nasdaq Stock Market Listing Fee................................................ $ *
Blue Sky Fees and Expenses......................................................... $ *
Legal Fees and Expenses............................................................ $ *
Accounting Fees and Expenses....................................................... $ *
Printing Fees and Expenses......................................................... $ *
Transfer Agent & Registration Fees and Expenses.................................... $ *
Miscellaneous...................................................................... $ *
---------
Total........................................................................ $ *
- ------------------------
*To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Nine of the Certificate of Incorporation provides that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the General Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, I.E., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Eight of the Certificate of Incorporation states that directors of
Workflow Management will not be liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the General Corporation Law of the State of Delaware, which makes
directors liable for unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) for any transaction from which the director derived an
improper personal benefit.
II-1
Article IV of the By-laws provides that Workflow Management shall indemnify
its officers and directors (and those serving at the request of the Company as
an officer or director of another corporation, partnership, joint venture, trust
or other enterprise), and may indemnify its employees and agents (and those
serving at the request of the Company as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise), against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred, if such officer, director, employee
or agent acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of Workflow Management, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. In a derivative action, indemnification shall be limited to
expenses (including attorney's fees) actually and reasonably incurred by such
officer, director, employee or agent in the defense or settlement of such action
or suit, and no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to Workflow
Management unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Unless the Board of Directors otherwise determines in a specific case,
expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding shall be paid by Workflow Management in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the officer or director to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See index to exhibits.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the District of
Columbia, on March 6, 1998.
WORKFLOW MANAGEMENT, INC.
By: /s/ THOMAS B. D'AGOSTINO
-----------------------------------------
Name: Thomas B. D'Agostino
TITLE: CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
/s/ THOMAS B. D'AGOSTINO Chief Executive Officer
- ------------------------------ (Principal Executive March 6, 1998
Thomas B. D'Agostino Officer) and Director
/s/ MICHAEL B. FELDMAN Chief Financial Officer
- ------------------------------ (Principal Financial and March 6, 1998
Michael B. Feldman Accounting Officer)
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
1.1* Underwriting Agreement
3.1* Certificate of Incorporation
3.2* Bylaws
4.1* Specimen certificate representing shares of Common Stock
5* Opinion of Wilmer, Cutler & Pickering as to legality of securities being offered
10.1* Form of Distribution Agreement among U.S. Office Products Company, Workflow Management, Inc., Paradigm
Concepts, Inc., TDOP, Inc. and School Specialty, Inc.
10.2* Form of Tax Allocation Agreement among U.S. Office Products Company, Workflow Management, Inc.,
Paradigm Concepts, Inc., TDOP, Inc. and School Specialty, Inc.
10.3* Form of Tax Indemnification Agreement among Workflow Management, Inc., Paradigm Concepts, Inc., TDOP,
Inc. and School Specialty, Inc.
10.4* Form of Employee Benefits Agreement among U.S. Office Products Company, Workflow Management, Inc.,
Paradigm Concepts, Inc., TDOP, Inc. and School Specialty, Inc.
10.5** Agreement dated as of January 24, 1997 between SFI Corp. and Thomas B. D'Agostino
10.6** Agreement dated as of January 24, 1997 between Hano Document Printers, Inc. and Timothy L. Tabor
10.7* Agreement dated as of January 13, 1998 between U.S. Office Products Company and Jonathan J. Ledecky
10.8* Credit Agreement
10.9* 1998 Stock Incentive Plan
21* Subsidiaries of Registrant
23.1* Consent of Wilmer, Cutler & Pickering contained in Exhibits 5 and 8 hereto
23.2** Consent of Price Waterhouse LLP
23.3** Consent of KPMG Peat Marwick LLP
23.4** Consent of Hertz, Herson & Company LLP
23.5** Consent of KPMG Peat Marwick LLP
23.6** Consent of Jonathan J. Ledecky to be named as a director
23.7** Consent of Timothy L. Tabor to be named as a director
23.8** Consent of Gus J. James, II to be named as a director
23.9** Consent of Thomas A. Brown, Sr. to be named as a director
27** Financial data schedule
- ------------------------
* To be filed by amendment.
** Filed herewith.
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