UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 24, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from --------------------- to
Commission File Number 0-24383
WORKFLOW MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1507104
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
240 Royal Palm Way
Palm Beach, FL 33480
(Address of principal executive offices) (Zip Code)
(561) 659-6551
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No__ .
As of August 24, 1999, there were 12,621,894 shares of common stock
outstanding.
<PAGE>
WORKFLOW MANAGEMENT, INC.
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet.......................................3
July 24, 1999 (unaudited) and April 24, 1999
Consolidated Statement of Income (unaudited).....................4
For the three months ended July 24, 1999 and July 25, 1998
Consolidated Statement of Cash Flows (unaudited).................5
For the three months ended July 24, 1999 and July 25, 1998
Notes to Consolidated Financial Statements (unaudited)...........7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................15
Item 3. Quantitative and Qualitative Disclosure About Market Risk.......23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................24
Signatures.................................................................25
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
July 24, April 24,
ASSETS 1999 1999
------ ------------ ------------
<S> <C>
(Unaudited)
Current assets:
Cash and cash equivalents $ 626 $ 607
Accounts receivable, less allowance for doubtful
accounts of $4,363 and $4,481, respectively 72,515 78,807
Inventories 37,296 36,152
Notes receivable from officers 1,938 1,958
Prepaid expenses and other current assets 8,428 6,921
------------ ------------
Total current assets 120,803 124,445
Property and equipment, net 44,398 43,138
Intangible assets, net 76,899 64,488
Other assets 6,450 6,501
------------ ------------
Total assets $ 248,550 $ 238,572
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short-term debt $ 761 $ 1,079
Accounts payable 27,519 34,712
Accrued compensation 8,231 9,391
Other accrued liabilities 14,031 12,089
------------ ------------
Total current liabilities 50,542 57,271
Long-term debt 121,007 107,223
Subordinated related party debt 4,878 4,878
Deferred income taxes 4,595 4,749
Other long-term liabilities 144 18
------------ ------------
Total liabilities 181,166 174,139
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 shares
authorized, none outstanding
Common stock, $.001 par value, 150,000,000 shares
Authorized, 12,620,507 and 12,585,598 issued and
outstanding, respectively 13 13
Additional paid-in capital 47,302 46,934
Accumulated other comprehensive loss (2,734) (1,880)
Retained earnings 22,803 19,366
------------ ------------
Total stockholders' equity 67,384 64,433
------------ ------------
Total liabilities and stockholders' equity $ 248,550 $ 238,572
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 24, July 25,
1999 1998
------------ -----------
<S> <C>
Revenues $ 118,462 $ 90,485
Cost of revenues 83,597 65,948
------------ -----------
Gross profit 34,865 24,537
Selling, general and administrative expenses 26,223 19,069
Amortization expense 447 133
Strategic restructuring plan costs 3,818
------------ -----------
Operating income 8,195 1,517
Other (income) expense:
Interest expense 2,217 1,154
Interest income (44) (25)
Other (51) 17
------------ -----------
Income before provision for income taxes 6,073 371
Provision for income taxes 2,636 163
------------ -----------
Net income $ 3,437 $ 208
============ ===========
Income per share:
Basic $ 0.27 $ 0.01
Diluted $ 0.26 $ 0.01
Weighted average common shares outstanding:
Basic 12,603 16,265
Diluted 13,462 16,475
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 24, July 25,
1999 1998
------------ -----------
<S> <C>
Cash flows from operating activities:
Net income $ 3,437 $ 208
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 2,530 1,646
Compensation charge for options tendered in the strategic restructuring 2,956
Other strategic restructuring plan costs, net of cash paid (516)
Cash paid for restructuring cost (95) (208)
Amortization of deferred financing costs 184 61
Changes in assets and liabilities (net of assets acquired and liabilities
assumed in business combinations):
Accounts receivable 8,136 4,458
Inventories (834) 1,341
Prepaid expenses and other current assets (1,326) (682)
Accounts payable (9,586) (5,090)
Accrued liabilities (733) 3,956
----------- -----------
Net cash provided by operating activities 1,713 8,130
----------- -----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received (11,994)
Deposit on equipment (1,000)
Additions to property and equipment (3,342) (2,596)
Cash received on the sale of property and equipment 329 122
Other 48
----------- -----------
Net cash used in investing activities (14,959) (3,474)
----------- -----------
Cash flows from financing activities:
Proceeds from credit facility borrowings 24,600 50,000
Payments of credit facility borrowings (11,975) (13,800)
Payments of other long-term debt (205) (5,543)
Proceeds from issuance of other long-term debt 1,362
Proceeds from (payments of) short-term debt, net (718) (4,466)
Payments of deferred financing costs (98) (2,363)
Proceeds from issuance of common stock 300
Payments to U.S. Office Products (32,991)
Capital contributed by U.S. Office Products 8,488
----------- -----------
Net cash provided by (used in) financing activities 13,266 (675)
----------- -----------
Effect of exchange rates on cash and cash equivalents (1) (12)
----------- -----------
Net increase in cash and cash equivalents 19 3,969
Cash and cash equivalents at beginning of period 607 234
----------- -----------
Cash and cash equivalents at end of period $ 626 $ 4,203
=========== ===========
</TABLE>
(Continued)
Page 5
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
July 24, July 25,
1999 1998
------------ -----------
<S> <C>
Supplemental disclosures of cash flow information:
Interest paid $ 1,896 $ 149
Income taxes paid $ 1,174 $ 1,082
</TABLE>
During the three months ended July 24, 1999, the Company paid a total of $11,994
in cash representing the aggregate of: 1) the initial down payment for one
purchase acquisition, 2) earn-out provisions and other purchase price
adjustments relating to certain acquisitions all of which related to business
combinations that were accounted for under the purchase method of accounting and
3) acquisition costs such as legal and accounting fees associated with certain
business combinations. The fair value of the assets and liabilities at the date
of acquisition and the impact of recording the various earn-outs and acquisition
costs are presented as follows:
<TABLE>
<CAPTION>
Three Months
Ended
July 24, 1999
-------------
<S> <C>
Accounts receivable $ 2,216
Inventories 596
Prepaid expenses and other current assets 256
Property and equipment 637
Goodwill and other intangible assets 13,276
Short-term debt (400)
Accounts payable (2,449)
Accrued liabilities (2,138)
----------------
Net assets acquired $ 11,994
================
</TABLE>
Noncash transactions:
o During the three months ended July 24, 1999, the Company accrued $2,095 as
additional purchase consideration for earn-outs.
o During the three months ended July 24, 1999, the Company recorded
additional paid-in capital of $68 related to the tax benefit of stock
options exercised.
See accompanying notes to consolidated financial statements.
Page 6
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1 - NATURE OF BUSINESS
- ---------------------------
Workflow Management, Inc. (the "Company" or "Workflow Management") is a Delaware
corporation formed by U.S. Office Products Company, also a Delaware corporation
("U.S. Office Products" or "USOP"), in connection with U.S. Office Products'
strategic restructuring plan that was consummated June 9, 1998 (the "Strategic
Restructuring Plan"). As part of its Strategic Restructuring Plan, U.S. Office
Products (i) transferred to the Company substantially all the assets and
liabilities of U.S. Office Products' Print Management Division and (ii)
distributed to holders of U.S. Office Products' common stock 14,643 shares (the
"Distribution" or "Workflow Distribution") of the Company's common stock, par
value $.001 per share ("Company Common Stock"). Holders of U.S. Office Products'
common stock were not required to pay any consideration for the shares of the
Company Common Stock they received in the Distribution. The Distribution
occurred on June 9, 1998 (the "Distribution Date").
Workflow Management is a leading acquirer and integrator of graphic arts
companies, providing a variety of print and office consumables and related
management services to more than 30,000 businesses in the United States and
Canada. The Company is comprised of two main operating divisions - the
Integrated Business Services Division, which provides customers with print
management services, including an e-commerce solution, designed to minimize the
costs of procuring, storing and using office consumables, and the Fulfillment
Division, which prints and produces envelopes, custom business documents,
commercial print, labels, packaging and direct mail literature. Workflow
Management employs over 2,800 persons and has 22 manufacturing facilities in 10
states and 5 Canadian Provinces, 27 distribution centers, 8 print-on-demand
centers and 62 sales offices.
NOTE 2 - BASIS OF PRESENTATION
- -------------------------------
For periods prior to the Distribution Date, the consolidated financial
statements reflect the revenues and expenses that were directly related to the
Company as it was operated within U.S. Office Products. The Company's statement
of income includes all of the related costs of doing business including an
allocation of certain general corporate expenses of U.S. Office Products
incurred prior to the Distribution Date which were not directly related to these
businesses. These allocations were based on a variety of factors, dependent upon
the nature of the costs being allocated. Management believes these allocations
were made on a reasonable basis.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair presentation of such operations. All such adjustments are of a normal
recurring nature. Operating results for interim periods are not necessarily
indicative of results that may be expected for the year as a whole. The
consolidated financial statements included in this Form 10-Q should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended April 24, 1999.
As used in these consolidated financial statements and related notes to
consolidated financial statements, "Fiscal 2000" and "Fiscal 1999" refer to the
Company's fiscal years ending April 29, 2000 and ended April 24, 1999,
respectively. The Company's fiscal year-end is defined as the last Saturday in
April. Certain reclassifications have been made to the prior period financial
statements to conform to the presentation for the three months ended July 24,
1999.
Page 7
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 3 - NOTES RECEIVABLE FROM OFFICERS
- ---------------------------------------
The Company extended secured loans to certain members of management for the
purchase, in the open market, of Company Common Stock by those individuals. The
notes are full recourse promissory notes bearing interest at 6.75% per annum and
are collateralized and secured with properly margined Company Common Stock
personally owned by those management members participating in the program.
Principal and interest are payable at maturity, September 1, 1999.
NOTE 4 - INVENTORIES
- --------------------
Inventories consist of the following:
July 24, April 24,
1999 1998
------------ -----------
Raw materials $ 11,804 $ 10,309
Work-in-process 3,061 2,123
Finished goods 22,431 23,720
------------ -----------
Total inventories $ 37,296 $ 36,152
============ ===========
NOTE 5 - LONG-TERM DEBT
- -----------------------
REVOLVING CREDIT FACILITY
The Company entered into a secured $200,000 revolving credit facility (the
"Credit Facility") underwritten and agented by Deutsche Bank during Fiscal 1999.
The Credit Facility matures on June 10, 2003 and is secured by substantially all
assets of the Company and is subject to terms and conditions typical of a credit
facility of such type and size, including certain financial covenants. Interest
rate options are available to the Company conditioned on certain leverage tests.
The maximum rate of interest is the prime rate from time to time in effect. The
Credit Facility is also available to fund the cash portion of future
acquisitions, subject to the maintenance of bank covenants and total
availability under the facility. At July 24, 1999, the Company had $117,225
drawn against the Credit Facility at an average interest rate of 6.74%.
SUBORDINATED RELATED PARTY DEBT
During Fiscal 1999, the Company issued $4,878 in subordinated unsecured notes
with attached warrants (the "Subordinated Notes") to certain members of the
Company's management. The Subordinated Notes mature on January 18, 2009, and
have a stated coupon of 12% payable semi-annually in arrears. The attached
warrants are exercisable into shares of Company Common Stock at a nominal cost
and will be issued on each anniversary of the purchase of the Subordinated Notes
at an amount sufficient to provide a 15% total annual return to each holder. The
indebtedness evidenced by the Subordinated Notes is subordinate to all amounts
outstanding under the Credit Facility. At July 24, 1999, no warrants had been
issued on the Subordinated Notes.
Page 8
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
INTEREST RATE PROTECTION
On May 17, 1999, the Company entered into a three-year interest rate swap
agreement (the "Swap") with Wachovia Bank, N.A. at no cost to the Company
whereby the Company exchanged its variable interest rate on $10,000 in Credit
Facility debt for a fixed LIBOR of 5.605%. Due to changes in market conditions
and increases in interest rates, the Swap increased in value and was sold by the
Company back to Wachovia Bank for $75 on July 22, 1999.
On July 22, 1999, the Company entered into an interest rate collar agreement
(the "Collar") with Bank Boston, N.A. for a $75 premium whereby the Company
established a LIBOR floor of 5.1% and a LIBOR cap of 7.0% on $25,000 of its
variable interest rate Credit Facility debt. The Collar becomes effective on
August 17, 1999 and will terminate on May 17, 2002.
NOTE 6 - STOCKHOLDERS' EQUITY
- -----------------------------
Changes in stockholders' equity during the three months ended July 24, 1999 were
as follows:
Stockholders' equity balance at April 24, 1999 $ 64,433
Issuance of common stock in conjunction with:
Exercise of stock options, including tax benefits 340
Fees paid to outside members of the Company's board of directors 28
Comprehensive income 2,583
----------
Stockholders' equity balance at July 24, 1999 $ 67,384
==========
COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
Three Months Ended
---------------------------
July 24, July 25,
1999 1998
------------ -----------
Net income $ 3,437 $ 208
Other comprehensive income:
Foreign currency translation adjustment (854) (1,419)
------------ -----------
Comprehensive income $ 2,583 $ (1,211)
============ ===========
Page 9
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 7 - EARNINGS PER SHARE ("EPS")
- ----------------------------------
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 following information presents the Company's computations
of basic and diluted EPS for the periods presented in the consolidated statement
of income:
Three Months Ended
------------ ----------
July 24, July 25,
1999 1998
------------ ----------
BASIC EARNINGS PER SHARE:
Net income $ 3,437 $ 208
============ ==========
Weighted average number of
common shares outstanding 12,603 16,265
============ ==========
Basic earnings per share $ 0.27 $ 0.01
============ ==========
DILUTED EARNINGS PER SHARE:
Net income $ 3,437 $ 208
============ ==========
Weighted average number of:
Common shares outstanding 12,603 16,265
Effect of dilutive employee stock options* 859 210
------------ ----------
Total 13,462 16,475
============ ==========
Diluted earnings per share $ 0.26 $ 0.01
============ ==========
* The Company had additional employee stock options outstanding during the
periods presented that were not included in the computation of diluted earnings
per share because they were anti-dilutive.
NOTE 8 - BUSINESS COMBINATIONS
- ------------------------------
During the three month period ended July 24, 1999, the Company completed one
business combination which was accounted for under the purchase method for an
aggregate purchase price of $9,783 consisting entirely of cash. The total assets
related to this acquisition were $12,674, including goodwill and other
intangible assets of $9,484. The results of this acquisition have been included
in the Company's results from its date of acquisition.
During Fiscal 1999, the Company made twelve acquisitions accounted for under the
purchase method for an aggregate purchase price of $70,125, consisting entirely
of cash. The total assets related to these acquisitions were $88,379, including
intangible assets of $50,074. The results of these acquisitions have been
included in the Company's results from their respective dates of acquisition.
Page 10
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Several of the Company's acquisitions have earn-out provisions that could result
in additional purchase consideration payable in subsequent periods, ranging from
three to five years, dependent upon the future earnings of these acquisitions.
Additional purchase consideration of $838 was paid by the Company in connection
with these earn-out provisions during the three months ended July 24, 1999, and
another $2,388 is accrued for these earn-out provisions at July 24, 1999. This
additional consideration, whether paid or accrued, has been reflected in the
accompanying balance sheet as goodwill at July 24, 1999.
The following presents the unaudited pro forma results of operations of the
Company for the three month periods ended July 24, 1999 and July 25, 1998, as if
the Strategic Restructuring Plan and the purchase acquisitions completed since
the beginning of Fiscal 1999 had been consummated at the beginning of Fiscal
1999. The pro forma results of operations include certain pro forma adjustments
including the amortization of intangible assets and reductions in executive
compensation at the acquired companies of $33 and $1,599 for the three months
ended July 24, 1999 and July 25, 1998, respectively:
Three Months Ended
------------------
July 24, July 25,
1999 1998
------------ ------------
Revenues $ 119,786 $ 125,732
Net income 3,343 3,630
Earnings per share:
Basic $ 0.27 $ 0.22
Diluted 0.25 0.22
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 and the Strategic Restructuring Plan occurred at
the beginning of Fiscal 1999 or the results that may occur in the future.
NOTE 9 - SEGMENT REPORTING
- --------------------------
The Company's operating segments prepare separate financial information that is
evaluated regularly by the Company's Chief Financial Officer and the Company's
Chief Operating Officers. Operating segments of the Company are defined
primarily by the segment operation's core business function whether it is: a)
the procurement and subsequent distribution of product to the customer or b) the
sale of an internally manufactured product to the customer. The Company has
determined that its operating activities consist of two reportable operating
segments: the Company's Integrated Business Services Division and the Company's
Fulfillment Division.
The Company's Integrated Business Services Division represents those
subsidiaries of the Company that procure product, primarily print and office
consumables, and distribute it to customers through one of the Company's
distribution centers or directly from the product's manufacturer. The results of
the Integrated Business Services Division also include transactions with
customers utilizing the Company's proprietary GetSmart inventory and
distribution system. The Company's Fulfillment Division represents those
subsidiaries primarily engaged in the sale of products internally manufactured
at the Company. The Fulfillment Division provides envelopes, commercial print
products, custom forms and documents, annual reports, direct mail pieces,
specialty packaging, labels and advertising specialty products to its customers.
The Fulfillment Division also provides product to the Company's Integrated
Business Services Division for distribution to customers.
Page 11
<PAGE>
Corporate expenses include the costs of maintaining a corporate office. The
Company does not allocate corporate overhead or strategic restructuring plan
costs by segment in assessing performance.
Page 12
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
OPERATING SEGMENTS
The following table sets forth information as to the Company's
reportable operating segments:
Three Months Ended
---------------------------
July 24, July 25,
1999 1998
------------ -----------
REVENUES:
Integrated Business Services Division $ 43,876 $ 28,967
Fulfillment Division 77,194 63,282
Intersegment (2,608) (1,764)
------------ -----------
Total $ 118,462 $ 90,485
============ ===========
OPERATING INCOME:
Integrated Business Services Division $ 3,591 $ 1,838
Fulfillment Division 6,210 4,469
Corporate (1,606) (4,790)
------------ -----------
Total $ 8,195 $ 1,517
============ ===========
July 24, April 24,
1999 1999
IDENTIFIABLE ASSETS (AT PERIOD END): ------------ -----------
Integrated Business Services Division $ 78,542 $ 64,190
Fulfillment Division 161,638 165,007
Corporate 8,370 9,375
------------ -----------
Total $ 248,550 $ 238,572
============ ===========
GEOGRAPHIC SEGMENTS
The following table sets forth information as to the Company's
operations in its different geographic segments:
Three Months Ended
---------------------------
July 24, July 25,
1999 1998
------------ -----------
REVENUES:
United States $ 84,452 $ 59,781
Canada 34,010 30,704
------------ -----------
Total $ 118,462 $ 90,485
============ ===========
OPERATING INCOME:
United States $ 5,566 $ (795)
Canada 2,629 2,312
------------ -----------
Total $ 8,195 $ 1,517
============ ===========
July 24, April 24,
1999 1999
IDENTIFIABLE ASSETS (AT PERIOD END): ------------ -----------
United States $ 193,410 $ 180,579
Canada 55,140 57,993
------------ -----------
Total $ 248,550 $ 238,572
============ ===========
Page 13
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 10 - SUBSEQUENT EVENTS
- ---------------------------
BUSINESS COMBINATIONS
Subsequent to July 24, 1999 and through August 24, 1999, the Company completed
one business combination which was accounted for under the purchase method for
an aggregate purchase price of approximately $2,626 consisting entirely of cash.
The total assets related to this acquisition were approximately $3,105,
including goodwill and other intangible assets of approximately $1,940. The
results of this acquisition will be included in the Company's results from its
date of acquisition.
Page 14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS REPORT, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," "INTEND," "MAY," "WILL," "EXPECT" AND
SIMILAR EXPRESSIONS AS THEY RELATE TO WORKFLOW MANAGEMENT, INC. (THE "COMPANY"
OR "WORKFLOW MANAGEMENT") OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FORWARD LOOKING STATEMENTS INCLUDE, BUT ARE NOT
LIMITED TO, STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS OF THE IMPACT OF THE
YEAR 2000 ISSUE ON RESULTS OF OPERATIONS. THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED
IN, OR IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS, WHICH ARE MADE ONLY AS OF
THE DATE HEREOF.
INTRODUCTION
Workflow Management, Inc. (the "Company" or "Workflow Management") is a Delaware
corporation formed by U.S. Office Products Company, also a Delaware corporation
("U.S. Office Products"), in connection with U.S. Office Products' strategic
restructuring plan that was consummated June 9, 1998 (the "Strategic
Restructuring Plan"). As part of its Strategic Restructuring Plan, U.S. Office
Products (i) transferred to the Company substantially all the assets and
liabilities of U.S. Office Products' Print Management Division and (ii)
distributed to holders of U.S. Office Products' common stock 14,642,981 shares
(the "Distribution" or "Workflow Distribution") of the Company's common stock,
par value $.001 per share ("Company Common Stock"). Holders of U.S. Office
Products' common stock were not required to pay any consideration for the shares
of the Company Common Stock they received in the Distribution. The Distribution
occurred on June 9, 1998 (the "Distribution Date").
Workflow Management is a leading acquirer and integrator of graphic arts
companies, providing a variety of print and office consumables and related
management services to more than 30,000 businesses in the United States and
Canada. The Company is comprised of two main operating divisions - the
Integrated Business Services Division, which provides customers with print
management services, including an e-commerce solution, designed to minimize the
costs of procuring, storing and using office consumables, and the Fulfillment
Division, which prints and produces envelopes, custom business documents,
commercial print, labels, packaging and direct mail literature. Workflow
Management employs over 2,800 persons and has 22 manufacturing facilities in 10
states and 5 Canadian Provinces, 27 distribution centers, 8 print-on-demand
centers and 62 sales offices.
As used in this Management's Discussion and Analysis of Financial Condition and
Results of Operations, "Fiscal 2000" and "Fiscal 1999" refer to the Company's
fiscal years ending April 29, 2000 and ended April 24, 1999, respectively. The
following discussion should be read in conjunction with the consolidated
historical financial statements, including the related notes thereto, appearing
elsewhere in this Quarterly Report on Form 10-Q, as well as the Company's
audited consolidated financial statements, and notes thereto, for the fiscal
year ended April 24, 1999 included in the Company's Annual Report on Form 10-K.
Page 15
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 24, 1999 COMPARED TO THREE MONTHS ENDED JULY 25, 1998
Consolidated revenues increased 30.9%, from $90.5 million for the three months
ended July 25, 1998, to $118.5 million for the three months ended July 24, 1999.
The Company's Integrated Business Services Division revenues increased by $14.9
million or 51.5% and its Fulfillment Division revenues increased by $13.9
million or 22.0% when comparing the three months ended July 24, 1999 to the
three months ended July 25, 1998. These increases were primarily due to the
Company's business combinations consummated after July 25, 1998. Revenues for
the three months ended July 24, 1999, include revenues from thirteen companies
acquired in business combinations accounted for under the purchase method after
the beginning of the first quarter of Fiscal 1999 (the "Purchased Companies").
Revenues for the three months ended July 25, 1998, do not include revenues from
the Purchased Companies.
International revenues increased 10.8%, from $30.7 million, or 33.9% of
consolidated revenues, for the three months ended July 25, 1998, to $34.0
million, or 28.7% of consolidated revenues, for the three months ended July 24,
1999. International revenues consisted exclusively of revenues generated in
Canada and increased primarily due to one Canadian purchase acquisition
consummated during the fourth quarter of Fiscal 1999.
Gross profit increased 42.1%, from $24.5 million, or 27.1% of revenues, for the
three months ended July 25, 1998, to $34.9 million, or 29.4% of revenues, for
the three months ended July 24, 1999. The increase in gross profit was primarily
due to the Purchased Companies. The increase in gross profit as a percentage of
revenues was due to the Purchased Companies generating gross profit at a higher
percentage of revenues than was historically recognized by the Company.
Selling, general and administrative expenses increased 37.5%, from $ 19.1
million, or 21.1% of revenues, for the three months ended July 25, 1998, to
$26.2 million, or 22.1% of revenues, for the three months ended July 24, 1999.
The increase in selling, general and administrative expenses was primarily due
to the Purchased Companies and the additional corporate overhead that was
incurred during the three months ended July 24, 1999. The additional overhead
was the result of the Company operating as a stand-alone public entity following
its spin-off from U.S. Office Products for the entire three months ended July
24, 1999, compared to only a portion of the three months ended July 25, 1998.
This increase was partially offset by the benefits resulting from headcount
reductions and cost saving measures commenced by the Company during Fiscal 1999.
The increase in selling, general and administrative expenses as a percentage of
revenues during the three months ended July 24, 1999 was primarily due to the
additional corporate overhead incurred during the period.
Amortization expense increased $0.3 million from $0.1 million for the three
months ended July 25, 1998, to $0.4 million for the three months ended July 24,
1999. This increase was due exclusively to the increased number of acquisitions
accounted for under the purchase method that are included in the Company's
results for the three months ended July 24, 1999 versus the three months ended
July 25, 1998.
Page 16
<PAGE>
The Company incurred expenses of approximately $3.8 million during the three
months ended July 25, 1998 associated with U.S. Office Products' Strategic
Restructuring Plan. Under Generally Accepted Accounting Principles, the Company
was required to record a one-time, non-cash expense of approximately $3.0
million with a corresponding contribution to capital relating to the tender of
stock options by Workflow Management employees in U.S. Office Products' equity
tender offer at the Distribution Date. As a result of the Distribution, the
Company also incurred an additional $750,000 in transaction costs during the
three months ended July 25, 1998 relating to the Strategic Restructuring Plan
for legal, accounting and financial advisory services and various other fees.
Interest expense, net of interest income, increased 92.5%, from $1.1 million for
the three months ended July 25, 1998, to $2.2 million for the three months ended
July 24, 1999. This increase in net interest expense was due to the increased
level of debt outstanding during the three months ended July 24, 1999 as a
result of the Company securing a revolving credit facility. Funds available
under the Credit Facility were used primarily to pay off the Company's debt to
U.S. Office Products at the Distribution Date and for acquisition purposes.
Other income, net of other expense, increased from $17,000 of net other expense
for the three months ended July 25, 1998, to $51,000 of net other income for the
three months ended July 24, 1999. Other income primarily represents the net of
gains and/or losses on sales of equipment and miscellaneous other income and
expense items.
Provision for income taxes increased from $163,000 for the three months ended
July 25, 1998 to $2.6 million for the three months ended July 24, 1999,
reflecting effective income tax rates of 43.9% and 43.4%, respectively. During
both periods, the effective income tax rates reflect the recording of tax
provisions at the federal statutory rate of 34.0%, plus appropriate state and
local taxes. In addition, the effective tax rates were increased to reflect the
incurrence of non-deductible goodwill amortization expense resulting from the
acquisitions of certain Purchased Companies.
LIQUIDITY AND CAPITAL RESOURCES
At July 24, 1999, the Company had cash of $626,000 and working capital of $70.3
million. The Company's capitalization, defined as the sum of long-term debt,
subordinated related party debt and stockholders' equity, at July 24, 1999, was
approximately $193.3 million.
Workflow Management uses a centralized approach to cash management and the
financing of its operations. As a result, minimal amounts of cash and cash
equivalents are typically on hand as any excess cash would be used to pay down
the Company's revolving credit facility. Cash at July 24, 1999, primarily
represented customer collections and in-transit cash sweeps from the Company's
subsidiaries at the end of the quarter.
Workflow Management's anticipated capital expenditures budget for the next
twelve months is approximately $10.0 million for new equipment and maintenance,
including any costs associated with compliance testing and technical upgrades to
ensure that the Company's computer systems are Year 2000 compliant. See "--Year
2000 Issue" below.
During the three months ended July 24, 1999, net cash provided by operating
activities was $1.7 million. Net cash used in investing activities was $15.0
million, including $12.0 million used for acquisitions and $3.3 million used for
capital expenditures. Net cash provided by financing activities was $13.3
million, which included $12.6 million in net borrowings by the Company on its
revolving credit facility to primarily pay for acquisitions and $0.4 million in
net other borrowings.
Page 17
<PAGE>
During the three months ended July 25, 1998, net cash provided by operating
activities was $8.1 million. Net cash used in investing activities was $3.5
million, including $2.6 million used for additions to property and equipment and
$1.0 million used for a deposit on machinery. Net cash used in financing
activities was $675,000, which included $33.0 million of cash paid to U.S.
Office Products under its Strategic Restructuring Plan which was partially
offset by the Company's net borrowings of $23.8 million and an $8.5 million
capital contribution by U.S. Office Products.
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 28.7% of the Company's
total net sales for the three months ended July 24, 1999. As a result, Workflow
Management is subject to certain risks inherent in conducting business
internationally, including fluctuations in currency exchange rates. Changes in
exchange rates may have a significant effect on the Company's business,
financial condition and results of operations.
During the three months ended July 24, 1999, the Canadian dollar weakened
against the U.S. dollar ("USD"). The Canadian exchange rate declined from
approximately $0.68 USD at April 24, 1999 to $0.66 USD at July 24, 1999. This
resulted in a reduction in accumulated other comprehensive income, a component
of stockholders' equity, of approximately $854,000, reflecting the impact of the
declining exchange rate on the Company's investments in its Canadian subsidiary.
The Company is currently reviewing certain hedge transaction options to mitigate
the effect of currency fluctuations.
As a result of the provisions of Section 355 of the Internal Revenue Code of
1986, as amended, and certain tax contribution agreements entered into by the
Company in connection with the Distribution, the Company may be subject to
constraints on its ability to issue additional shares of the Company's common
stock in certain transactions for two years following the Distribution Date. In
particular, if 50% or more, by vote or value, of the capital stock of Workflow
Management is acquired by one or more persons acting pursuant to a plan or
series of transactions that includes the Distribution, Workflow Management will
suffer significant tax liability. The Company will evaluate any significant
future issuance of capital stock to avoid the imposition of such tax liability.
The Company entered into a secured $200.0 million revolving credit facility (the
"Credit Facility") underwritten and agented by Deutsche Bank during Fiscal 1999.
The Credit Facility matures on June 10, 2003 and is secured by substantially all
assets of the Company and is subject to terms and conditions typical of a credit
facility of such type and size, including certain financial covenants. Interest
rate options are available to the Company conditioned on certain leverage tests.
The maximum rate of interest is the prime rate from time to time in effect. The
Credit Facility is also available to fund the cash portion of future
acquisitions, subject to the maintenance of bank covenants and total
availability under the facility. At August 24, 1999, the Company had $120.5
million drawn against the Credit Facility at an average interest rate of 6.88%.
During Fiscal 1999, the Company issued $4.9 million in subordinated unsecured
notes with attached warrants (the "Subordinated Notes") to certain members of
the Company's management. The Subordinated Notes mature on January 18, 2009, and
have a stated coupon of 12% payable semi-annually in arrears. The attached
warrants are exercisable into shares of Company Common Stock at a nominal cost
and will be issued on each anniversary of the purchase of the Subordinated Notes
at an amount sufficient to provide a 15% total annual return to each holder. The
indebtedness evidenced by the Subordinated Notes is subordinate to all amounts
outstanding under the Credit Facility. As of August 24, 1999, no warrants had
been issued on the Subordinated Notes.
Page 18
<PAGE>
On May 17, 1999, the Company entered into a three-year interest rate swap
agreement (the "Swap") with Wachovia Bank, N.A. at no cost to the Company
whereby the Company exchanged its variable interest rate on $10.0 million in
Credit Facility debt for a fixed LIBOR of 5.605%. Due to changes in market
conditions and increases in interest rates, the Swap increased in value and was
sold by the Company back to Wachovia Bank for $75,000 on July 22, 1999.
On July 22, 1999, the Company entered into an interest rate collar agreement
(the "Collar") with Bank Boston, N.A. for a $75,000 premium whereby the Company
established a LIBOR floor of 5.1% and a LIBOR cap of 7.0% on $25.0 million of
its variable interest rate Credit Facility debt. The Collar became effective on
August 17, 1999 and will terminate on May 17, 2002.
The Company anticipates that its current cash on hand, cash flow from operations
and additional financing available under the Credit Facility will be sufficient
to meet the Company's liquidity requirements for its operations for the next
twelve months. However, the Company intends to pursue acquisitions, which are
expected to be funded through cash, stock or a combination thereof. There can be
no assurance that additional sources of financing will not be required during
the next twelve months or thereafter.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Workflow Management's envelope business is subject to seasonal influences from
year-end mailings. Both the Company's Integrated Business Services Division and
its Fulfillment Division are subject to seasonal influences of the potential
lower demand for office consumables during the summer months which coincide with
Workflow Management's fiscal quarters ending in July. As the Company continues
to complete acquisitions, it may become subject to other seasonal influences if
the businesses it acquires are seasonal.
Quarterly results also may be materially affected by the timing of acquisitions,
the timing and magnitude of costs related to such acquisitions, variations in
the prices paid by the Company for the products it sells, the mix of products
sold and general economic conditions. Moreover, the operating margins of
companies acquired may differ substantially from those of Workflow Management,
which could contribute to further fluctuation in its quarterly operating
results. Therefore, results for any quarter are not necessarily indicative of
the results that the Company may achieve for any subsequent fiscal quarter or
for a full fiscal year.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during the three-month periods ended July 24, 1999 and
July 25, 1998, respectively.
Page 19
<PAGE>
YEAR 2000 ISSUE
Many existing computer programs were designed and developed without considering
the impact of the upcoming change in the century and consequently use only two
digits to identify a year in the date field. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000 (the
"Year 2000 Issue" or "Year 2000").
The Company has assessed the potential impact of the Year 2000 Issue on its
systems and the systems of major vendors, major customers and third party
service providers, and has commenced a process to remediate any non-compliance
of its systems. With respect to its internal systems, the potential Year 2000
effects extend beyond the Company's information technology systems to its
manufacturing systems and physical facilities. The Company has implemented a
three-step approach to address Year 2000 which involves the following phases:
(i) Identification, (ii) Assessment and (iii) Remediation and Testing. The
Company created a committee chaired by the Company's Chief Financial Officer and
made up of its internal audit staff, Company key management and in-house
management information systems (MIS) personnel to monitor progress of the Year
2000 Issue, including particularly assessment and remediation. The Year 2000
committee reports results of the assessment and remediation phases directly to
the Company's audit committee which is comprised of two outside members from the
Company's board of directors.
The Company completed the identification phase of the Year 2000 Issue and has
inventoried all internal systems, including information technology (IT) and
non-IT systems, hardware, software and its proprietary software systems and
services material to its operations that are potentially susceptible to Year
2000 problems. The Company also assessed compliance and prepared plans for
completing remediation. In addition, the Company prepared and distributed
vendor, supplier and customer compliance surveys to ascertain the Year 2000
readiness of its key suppliers and business partners.
The assessment phase involves analyzing the internal systems, vendors, suppliers
and customers recognized in the identification phase, assessing which of the
Company's systems and key business partners are Year 2000 compliant, and
planning for remediation of non-compliant systems. The Company has evaluated its
internal systems and has received a majority of the third-party compliance
surveys distributed in the identification phase.
Based upon the assessment phase, the Company believes that the majority of its
non-IT systems, including the Company's printing presses, security systems, time
clocks and manufacturing facilities, are Year 2000 compliant. The Company
believes that there are no significant uses of micro-processing oriented
equipment within its manufacturing systems and that the cost to address any
components deemed to be non-compliant is not material. Based on information
provided by vendors and suppliers in the compliance surveys, the Company also
believes that the vast majority of its vendors and customers who have responded
to the Company's compliance surveys are Year 2000 compliant. The Company intends
to work directly with its key vendors, suppliers and distributors to avoid any
business interruptions due to the Year 2000 Issue. For major third-parties with
known Year 2000 compliance issues, contingency plans have been developed and are
expected to be fully implemented by the end of September 1999.
Page 20
<PAGE>
In the remediation and testing phase, the Company deployed plans for
elimination, upgrade, replacement or modification of non-compliant systems and
test compliance. The Company completed the Year 2000 conversion and testing of
its proprietary distribution software system (known as GetSmart) in November
1998 and completed the Year 2000 conversion and testing of its other proprietary
software system and related services (known as Informa) in December 1998. The
Company is in the final stages of completion regarding the remediation and
testing phase for its other systems and believes that substantially all of its
systems are Year 2000 compliant.
If the Company and its customers, suppliers and vendors were not Year 2000
compliant by January 1, 2000, the most reasonably likely worst case scenario
would be a temporary shutdown or cessation of distribution or manufacturing
operations at one or more of the Company's facilities and a temporary inability
of the Company to timely process customer orders and deliver products to
customers. Any such shutdown could have a material adverse effect on the
Company's results of operations, liquidity and financial position. The Company's
systems are not currently uniform across all operations and the Company does not
expect uniformity by the end of 1999. Therefore, the Company does not anticipate
system wide failures as a result of the Year 2000 Issue. The Company's
individual business units and Year 2000 committees are currently identifying and
considering various contingency options, including identification of alternate
suppliers, vendors and service providers, and manual alternatives to systems
operations, which would allow the Company to minimize the risks of any
unresolved Year 2000 problems on their operations and to minimize the effect of
any unforeseen Year 2000 failures.
The Company estimates that it will incur approximately $6.0 million of
incremental expenses in connection with the Year 2000 Issue, of which
approximately $5.6 million has been incurred to date. The Company anticipates
funding future Year 2000 Issue costs with funds available from operations and
the Company's credit facility with its senior lenders.
While costs associated with the Year 2000 Issue may be material in one or more
of the Company's fiscal quarters, the Company does not believe that the Year
2000 Issue will have a material adverse effect on the long-term results of
operations, liquidity or financial position of the Company. However, no
assurance can be given that unforeseen circumstances will not arise as the
Company addresses the Year 2000 Issue. Specific factors that may cause the
Company to experience unanticipated problems with respect to the Year 2000 Issue
include the availability and cost of adequately trained personnel, the ability
to locate and correct all affected computer code, and the timing and success of
Year 2000 efforts by the Company's customers, suppliers and vendors.
Page 21
<PAGE>
FACTORS AFFECTING THE COMPANY'S BUSINESS
RISKS ASSOCIATED WITH ACQUISITIONS AND DIVESTITURES
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. In addition, the Company may determine that its
business interests would be best served by selling certain subsidiaries, assets
or operations to third parties. Accordingly, the Company has in the past
considered, and will continue to consider in the future, divestitures of certain
operations or assets to the extent management believes that such transactions
could improve the Company's overall financial condition and/or future prospects.
Any such divestitures would reduce the Company's revenues. Divestitures could
also (i) eliminate certain products or product lines that the Company has
historically offered to its customers and (ii) reduce or eliminate the Company's
presence in certain geographic markets.
Integration of acquired companies may involve a number of special risks that
could have a material adverse effect on the Company's operations and financial
performance, including adverse short-term effects on its reported operating
results (including those adverse short-term effects caused by severance payments
to employees of acquired companies, restructuring charges associated with the
acquisitions and other expenses associated with a change of control, as well as
non-recurring acquisition costs including accounting and legal fees, investment
banking fees, recognition of transaction-related obligations and various other
acquisition-related costs); diversion of management's attention; difficulties
with retention, hiring and training of key personnel; risks associated with
unanticipated problems or legal liabilities; and amortization of acquired
intangible assets. Furthermore, although Workflow Management conducts due
diligence and generally requires representations, warranties and
indemnifications from the former owners of acquired companies, there can be no
assurance that such owners will have accurately represented the financial and
operating conditions of their companies. If an acquired company's financial or
operating results were misrepresented, the acquisition could have a material
adverse effect on the results of operations and financial condition of Workflow
Management.
Workflow Management may in the future seek to finance its acquisitions by using
shares of Company Common Stock. If the Company Common Stock does not maintain a
sufficient market value, if the price of Company Common Stock is highly
volatile, or if potential acquisition candidates are otherwise unwilling to
accept Company Common Stock as part of the consideration for the sale of their
businesses, Workflow Management may be required to use more of its cash
resources or more borrowed funds in order to initiate and maintain its
acquisition program. If Workflow Management does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity offerings. The Company does not anticipate
utilizing Company Common Stock for acquisition purposes during the current
fiscal year.
Page 22
<PAGE>
Approximately $76.9 million, or 30.9% of the Company's total assets at July 24,
1999, represents intangible assets, the significant majority of which is
goodwill. Goodwill represents the excess of cost over the fair market value of
net assets acquired in business combinations accounted for under the purchase
method. The Company amortizes goodwill on a straight line method over a period
of 40 years with the amount amortized in a particular period constituting a
non-cash expense that reduces the Company's net income. The Company will be
required to periodically evaluate the recoverability of goodwill by reviewing
the anticipated undiscounted future cash flows from the operations of the
acquired companies and comparing such cash flows to the carrying value of the
associated goodwill. If goodwill becomes impaired, Workflow Management would be
required to write down the carrying value of the goodwill and incur a related
charge to its income. A reduction in net income resulting from the amortization
or write down of goodwill could have a material and adverse impact upon the
market price of the Company Common Stock.
RISKS ASSOCIATED WITH CANADIAN OPERATIONS
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 28.7% and 32.2% of the
Company's total net sales in the three months ended July 24, 1999 and the fiscal
year ended April 24, 1999, respectively. As a result, Workflow Management is
subject to certain risks inherent in conducting business internationally,
including fluctuations in currency exchange rates. Workflow Management is also
subject to risks associated with the imposition of protective legislation and
regulations, including those resulting from trade or foreign policy. In
addition, because of the Company's Canadian operations, significant revenues and
expenses are denominated in Canadian dollars. Changes in exchange rates may have
a significant effect on the Company's business, financial condition and results
of operations. Workflow Management does not currently engage in currency hedging
transactions.
For additional risk factors, refer to the Company's Annual Report on Form 10-K
for the year ended April 24, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's financial instruments include cash, accounts receivable, accounts
payable and long-term debt. Market risks relating to the Company's operations
result primarily from changes in interest rates. The Company's borrowings are
primarily dependent upon LIBOR rates. The estimated fair value of the Company's
long-term debt approximated its carrying value at July 24, 1999.
The Company does not hold or issue derivative financial instruments for trading
purposes. To manage interest rate risk on the variable rate borrowings under the
Credit Facility, the Company entered into an interest rate collar agreement on
July 22, 1999. This interest rate collar has the effect of mitigating
fluctuations in the Credit Facility's variable base interest rate by
establishing an interest rate floor and an interest rate cap, for a specified
period, the Company will pay on the $25.0 million notional principal amount
established in the collar. As a result, while this hedging arrangement is
structured to reduce the Company's exposure to interest rate increases, it also
limits the benefit the Company might otherwise have received from any interest
rate decreases. This swap will be cash settled quarterly, with interest expense
adjusted for amounts paid or received.
Page 23
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
11.1 Statement regarding computation of net income per share
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
NONE.
Page 24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORKFLOW MANAGEMENT, INC.
September 3, 1999 By: /s/ Thomas B. D'Agostino
- --------------------------- ------------------------
Date Thomas B. D'Agostino
Chairman of the Board, Chief Executive
Officer, President, Director (Principal
Executive Officer)
September 3, 1999 By: /s/ Steve R. Gibson
- --------------------------- -------------------
Date Steve R. Gibson
Executive Vice President, Chief Financial Officer,
Treasurer, Secretary (Principal Financial
Officer and Principal Accounting Officer)
Page 25
EXHIBIT 11.1
WORKFLOW MANAGEMENT, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
----------------------------
July 24, July 25,
1999 1998
------------ ------------
BASIC EARNINGS PER SHARE:
Net income $ 3,437 $ 208
============ ============
Weighted average number of
common shares outstanding 12,603 16,265
============ ============
Basic earnings per share $ 0.27 $ 0.01
============ ============
DILUTED EARNINGS PER SHARE:
Net income $ 3,437 $ 208
============ ============
Weighted average number of:
Common shares outstanding 12,603 16,265
Effect of dilutive employee stock options* 859 210
------------ ------------
Total 13,462 16,475
============ ============
Diluted earnings per share $ 0.26 $ 0.01
============ ============
* The Company had additional employee stock options outstanding during the
periods presented that were not included in the computation of diluted
earnings per share because they were anti-dilutive.
Page 26
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-29-2000
<PERIOD-END> JUL-24-1999
<CASH> 626
<SECURITIES> 0
<RECEIVABLES> 76,878
<ALLOWANCES> (4,363)
<INVENTORY> 37,296
<CURRENT-ASSETS> 120,803
<PP&E> 75,140
<DEPRECIATION> (30,742)
<TOTAL-ASSETS> 248,550
<CURRENT-LIABILITIES> 50,542
<BONDS> 125,885
0
0
<COMMON> 13
<OTHER-SE> 67,371
<TOTAL-LIABILITY-AND-EQUITY> 248,550
<SALES> 118,462
<TOTAL-REVENUES> 118,462
<CGS> 83,597
<TOTAL-COSTS> 83,597
<OTHER-EXPENSES> 26,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,173
<INCOME-PRETAX> 6,073
<INCOME-TAX> 2,636
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,437
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.26
</TABLE>
