UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended October 31, 2003
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 .
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of December 12, 2003, there were 13,414,125 shares of common stock
outstanding.
WORKFLOW MANAGEMENT, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION --------
Item 1. Financial Statements
Consolidated Balance Sheet..............................................................................3
October 31, 2003 (unaudited) and April 30, 2003
Consolidated Statement of Operations (unaudited)........................................................4
For the three and six months ended October 31, 2003 and October 31, 2002
Consolidated Statement of Cash Flows (unaudited)........................................................5
For the six months ended October 31, 2003 and October 31, 2002
Notes to Consolidated Financial Statements (unaudited)..................................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................................................16
Item 3. Quantitative and Qualitative Disclosure About Market Risk..............................................27
Item 4. Controls and Procedures................................................................................27
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................................28
Signatures........................................................................................................29
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share amounts)
October 31, April 30,
ASSETS 2003 2003
------ ------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 2,427 $ 4,992
Accounts receivable, less allowance for doubtful
accounts of $3,818 and $3,455, respectively 86,783 89,585
Inventories 44,743 49,182
Assets of businesses held for sale 8,219
Short-term deferred income taxes 7,760 7,738
Prepaid expenses and other current assets 10,206 7,855
------------ ------------
Total current assets 151,919 167,571
Property and equipment, net 36,691 38,072
Goodwill 113,531 109,515
Other intangible assets, net 1,294 1,307
Long-term deferred income taxes 9,239 7,568
Other assets 4,643 5,844
------------ ------------
Total assets $ 317,317 $ 329,877
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 154,091 $ 674
Accounts payable 38,562 35,332
Accrued compensation 10,460 13,266
Accrued additional purchase consideration 4,839 7,677
Accrued restructuring costs 2,108 2,448
Liabilities of businesses held for sale 3,219
Short-term swap liability 2,508 4,263
Other accrued liabilities 19,577 20,071
------------ ------------
Total current liabilities 232,145 86,950
Long-term credit facility 165,065
Other long-term debt 1,147 834
Deferred income taxes 5,573 5,405
Other long-term liabilities 8,517 3,757
------------ ------------
Total liabilities 247,382 262,011
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value, 1,000,000 shares authorized, none
outstanding
Common stock, $.001 par value, 150,000,000 shares authorized,
13,414,125 and 13,359,164 shares, respectively, issued and outstanding 13 13
Additional paid-in capital 53,491 53,191
Notes receivable from officers (40) (53)
Accumulated other comprehensive income (loss) 533 (699)
Retained earnings 15,938 15,414
------------ ------------
Total stockholders' equity 69,935 67,866
------------ ------------
Total liabilities and stockholders' equity $ 317,317 $ 329,877
============ ============
See accompanying notes to consolidated financial statements.
3
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
October 31, October 31, October 31, October 31,
2003 2002 2003 2002
------------ ------------ ------------ -----------
Revenues $ 148,194 $ 159,201 $ 291,097 $ 309,323
Cost of revenues 106,701 114,399 211,476 222,495
------------ ------------ ------------ -----------
Gross profit 41,493 44,802 79,621 86,828
Selling, general and administrative expenses 33,733 35,868 67,231 71,249
Restructuring costs 1,021 221
Severance and other employment costs (2,239)
----------- ------------ ------------ -----------
Operating income 7,760 8,934 13,608 15,358
Interest expense 4,440 5,860 8,754 10,003
Interest income (29) (123) (67) (263)
Loss on ineffective interest rate hedge 105 1,106 124 5,451
Financing fees and other bank related costs 661 810 661 810
Abandoned debt offering costs 174 1,879
Other expense (income) 58 (3) (25) 10
------------ ------------ ------------ -----------
Income (loss) from continuing operations
before provision (benefit) for income taxes 2,525 1,110 4,161 (2,532)
Provision (benefit) for income taxes 1,439 457 2,378 (571)
------------ ------------ ------------ -----------
Income (loss) from continuing operations 1,086 653 1,783 (1,961)
------------ ------------ ------------ -----------
Discontinued operations:
(Loss) income from discontinued
operations (235) (2,171) 135
(Benefit) provision for income taxes (99) (912) 56
------------ ------------ ------------ -----------
(Loss) income from discontinued operations (136) (1,259) 79
------------ ------------ ------------ -----------
Net income (loss) $ 1,086 $ 517 $ 524 $ (1,882)
=========== ============ ============ ===========
Net income (loss) per share:
Basic:
Income (loss) from continuing operations $ 0.08 $ 0.05 $ 0.13 $ (0.15)
(Loss) income from discontinued
operations (0.01) (0.09) 0.01
------------- ------------ ------------ -----------
Net income (loss) $ 0.08 $ 0.04 $ 0.04 $ (0.14)
============= ============ ============ ============
Diluted:
Income (loss) from continuing operations $ 0.08 $ 0.05 $ 0.13 $ (0.15)
(Loss) income from discontinued
operations (0.01) (0.09) 0.01
------------- ------------ ------------ -----------
Net income (loss) $ 0.08 $ 0.04 $ 0.04 $ (0.14)
============= ============ ============ ===========
Weighted average common shares outstanding:
Basic 13,396 13,194 13,382 13,174
Diluted 13,534 13,224 13,474 13,174
See accompanying notes to consolidated financial statements.
4
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended October 31,
2003 2002
------------ -----------
Cash flows from operating activities:
Net income (loss) $ 524 $ (1,882)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 4,606 4,907
Restructuring costs, net of cash paid (351) (60)
Amortization of deferred financing costs 1,624 1,441
Loss on ineffective swap 124 5,451
Loss on abandoned debt offering 1,879
Loss from discontinued operations 2,171 (135)
Change in assets and liabilities held for sale, net 651 (577)
Changes in assets and liabilities:
Accounts receivable 4,830 4,402
Inventories 5,769 (3,529)
Prepaid expenses and other assets (1,716) (370)
Accounts payable 2,444 284
Accrued liabilities (5,877) (7,084)
----------- ------------
Net cash provided by operating activities 14,799 4,727
----------- -----------
Cash flows from investing activities:
Cash paid in acquisitions (48) (1,082)
Cash paid for additional purchase consideration (6,286) (7,403)
Cash proceeds from the sale of discontinued operations 5,000
Additions to property and equipment (1,948) (2,486)
Other 40 381
----------- -----------
Net cash used in investing activities (3,242) (10,590)
----------- -----------
Cash flows from financing activities:
Proceeds from credit facility borrowings 48,139 75,800
Payments of credit facility borrowings (59,713) (64,250)
Payments of other debt (314) (373)
Payment of abandoned debt offering costs (1,879)
Payment on cash settlement of interest rate swap (1,879) (1,620)
Payments of deferred financing costs (742) (1,177)
Other 170 371
----------- ------------
Net cash (used in) provided by financing activities (14,339) 6,872
----------- -----------
Effect of exchange rates on cash and cash equivalents 217 (7)
---------- -----------
Net (decrease) increase in cash and cash equivalents (2,565) 1,002
Cash and cash equivalents at beginning of period 4,992 5,262
----------- -----------
Cash and cash equivalents at end of period $ 2,427 $ 6,264
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 6,077 $ 11,228
Income taxes paid $ 1,779 $ 3,666
Non-cash transactions:
o During the six months ended October 31, 2003 and October 31, 2002, the
Company accrued $3,656 and $3,940 for additional purchase consideration for
earn-outs, respectively.
o During the six months ended October 31, 2003, the Company recorded
additional paid-in capital of $2 relating to the tax benefit of stock
options exercised.
See accompanying notes to consolidated financial statements.
5
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
NOTE 1 - NATURE OF BUSINESS
---------------------------
Workflow Management, Inc. (the "Company" or "Workflow Management") is one
of the largest distributors of printed business products in North America and is
also a leading provider of end-to-end business management outsourcing solutions,
which include vendor-neutral custom print sourcing, consulting and integrated
storage and distribution services, that allow its customers to control all of
their print-related costs. The Company produces and distributes a full range of
printed business products and provides related management services to
approximately 31,000 customers in North America ranging in size from small
businesses to Fortune 100 companies. Workflow Management provides customers with
an integrated set of services and information tools that reduce the costs of
procuring, storing, distributing and using printed business products and
produces custom business documents, envelopes, direct mail and commercial
printing. The Company employs approximately 2,700 persons and has 87 facilities
located throughout North America.
NOTE 2 - LIQUIDITY
------------------
Effective on August 1, 2003, the Company amended its credit facility (the
"Amended Restructured Credit Facility"). Under the terms of the amendment, the
Company deferred repayment of the $50,000 term loan portion of the Amended
Restructured Credit Facility until May 1, 2004. In addition, the repayment terms
for another term loan and the asset based revolving facility of the Amended
Restructured Credit Facility have been accelerated to August 1, 2004. The
Company is currently pursuing various strategic and refinancing alternatives
that would allow it to repay its obligations under the Amended Restructured
Credit Facility by their respective due dates. However, the Company does not
have any firm commitments with respect to any potential refinancing or similar
transactions, nor does the Company anticipate generating operating cash flows
that would allow it to repay these obligations directly. There can be no
assurance that the Company will be able to repay its obligations by their
respective due dates. In the event that the Company is unable to do so, it will
be in default with its lenders under the Amended Restructured Credit Facility.
Any such default likely would have a material adverse effect on the Company's
business, financial condition and results of operations and the lenders'
remedies upon such default would include the right to foreclose on the Company's
assets.
NOTE 3 - BASIS OF PRESENTATION
------------------------------
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of Workflow Management
and all of its wholly-owned subsidiaries. All significant intracompany accounts
and transactions have been eliminated.
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. Significant
estimates include allowance for doubtful account and inventory reserves,
impairment of property and equipment, impairment of goodwill and realization of
deferred tax assets.
6
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair presentation of such operations. All such adjustments are of a normal
recurring nature. Operating results for interim periods are not necessarily
indicative of results that may be expected for the year as a whole. The
consolidated financial statements included in this Form 10-Q should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended April 30, 2003.
As used in the Notes to Consolidated Financial Statements, "Fiscal 2003",
"Fiscal 2002", "Fiscal 2001" and "Fiscal 1999" refer to the Company's fiscal
years ended April 30, 2003, 2002 and 2001 and April 24, 1999, respectively.
NOTE 4 - INVENTORIES
--------------------
Inventories consist of the following:
October 31, April 30,
2003 2003
------------- -------------
Raw materials..................................................................... $ 9,173 $ 11,438
Work-in-process................................................................... 8,583 6,294
Finished goods.................................................................... 26,987 31,450
------------- -------------
Total inventories $ 44,743 $ 49,182
============= =============
NOTE 5 - PROPERTY AND EQUIPMENT
-------------------------------
Property and equipment consists of the following:
October 31, April 30,
2003 2003
----------- -----------
Buildings............................................................................. $ $ 351
Furniture and fixtures................................................................ 28,366 26,000
Computer equipment and software....................................................... 24,823 22,972
Warehouse equipment................................................................... 34,155 33,309
Equipment under capital leases........................................................ 1,224 1,224
Leasehold improvements................................................................ 12,514 11,936
----------- -----------
101,082 95,792
Less: Accumulated depreciation........................................................ (64,391) (57,720)
----------- -----------
Net property and equipment............................................................ $ 36,691 $ 38,072
=========== ===========
Depreciation expense for the three months ended October 31, 2003 and
October 31, 2002 was $2,321 and $2,436, respectively, and for the six months
ended October 31, 2003 and October 31, 2002 was $4,569 and $4,858, respectively.
7
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 6 - DEBT
-------------
Revolving Credit Facility
On August 1, 2003, the Company entered into the Amended Restructured Credit
Facility with its senior lenders. Under the terms of the Amended Restructured
Credit Facility, Term Loan B matures on May 1, 2004 while the asset based
facility ("Revolver") and Term Loan A both mature on August 1, 2004.
The Amended Restructured Credit Facility contains a number of affirmative
covenants. These covenants include, but are not limited to, the requirement that
the Company meet certain leverage ratio, interest coverage ratio, fixed charge
ratio and minimum EBITDA thresholds on an ongoing basis. The Revolver contains
advance rates of 85% of the Company's eligible accounts receivable, 60% of the
Company's eligible inventories (until February 1, 2004 at which time it reduces
to 50%) and $10,000 against the Company's fixed assets. Under the Amended
Restructured Credit Facility, the Company's senior lenders hold warrants for
2,400 shares which would represent approximately 15.2% of the Company's
outstanding common stock if the warrants were exercised. Under the terms of the
warrant, the first warrant tranche, for 400 shares, would become exercisable on
December 31, 2003 unless, by November 30, 2003, the Company had delivered to its
senior lenders a plan acceptable to its lenders to repay, in total, all of the
outstanding obligations under the Amended Restructured Credit Facility by March
31, 2004. On November 26, 2003, the Company met the plan delivery requirement
with its lenders. The lenders have until December 31, 2003 to accept the plan.
Additional warrant tranches of 400 shares each become exercisable each month for
a period of five months beginning no later than March 31, 2004 but only in the
event there remains outstanding indebtedness under the Amended Restructured
Credit Facility on the date the tranche becomes exercisable. Each warrant
tranche would have an exercise price equal to the fair market value of the
Company's common stock on the date the tranche becomes exercisable.
The outstanding balances on the Amended Restructured Credit Facility at October
31, 2003 were as follows:
Maximum Amount Applicable
Availability Outstanding Interest Rate
------------- ------------- -------------
Revolver $ 100,000 $ 87,220 LIBOR + 5%
Term Loan A 16,313 16,313 LIBOR + 8%
Term Loan B 50,000 50,000 11%, 12%, 13% & 14% for each
calendar quarter of 2003
------------- -------------
$ 166,313 $ 153,533
============= =============
At October 31, 2003, the Company had $153,533 outstanding on the Amended
Restructured Credit Facility and, in addition, $3,094 in outstanding letters of
credit. The Company's availability under the Restructured Credit Facility at
October 31, 2003 was $9,686 after inclusion of letters of credit.
8
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Letters of Credit
The Company has outstanding letters of credit of approximately $3,094
related to performance and payment guarantees. Based upon the Company's
experience with these arrangements, the Company does not believe that any
obligations that may arise will be significant.
Interest Rate Swap
The Company does not hold or issue derivative financial instruments for
trading purposes. On May 3, 2001, the Company entered into an interest rate swap
agreement (the "Swap") with various lending institutions at no initial cost to
the Company with an effective date of August 1, 2001 and an expiration date of
March 10, 2004. The Company exchanged its variable interest rate on $100,000 in
credit facility debt for a fixed LIBOR of approximately 5.10% plus the Company's
interest rate spread under its prior credit facility. The Swap was entered into
to manage interest rate risk on the variable rate borrowings under the Company's
revolving credit portion of its debt. This interest rate swap has the effect of
locking in, for a specified period, the base interest rate the Company will pay
on the $100,000 notional principal amount established in the Swap. As a result,
while this hedging arrangement is structured to reduce the Company's exposure to
increases in interest rates, it also limits the benefit the Company might
otherwise have received from any decreases in interest rates.
The Company accounted for the Swap under the guidelines of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Effective May 1,
2001, the Company implemented SFAS No. 133 as amended. This standard requires
companies to record all derivative instruments as assets or liabilities on the
balance sheet, measured at fair value. The recognition of gains or losses
resulting from changes in the values of those derivative instruments is based on
the use of each derivative instrument and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. Under the guidelines of SFAS No. 133, the Company
originally classified the Swap as a cash flow hedge. However, on October 16,
2002, the Company's prior credit facility was amended so that borrowings under
the credit facility bore a non-LIBOR based fixed interest rate. Thus, under SFAS
No. 133 as amended, the Swap underlying this debt became ineffective and could
no longer be designated as a cash flow hedge of variable rate debt. This
ineffective Swap is cash settled quarterly dependent upon the movement of
3-month LIBOR rates. In measuring the fair value of the Swap at October 31,
2003, the Company recorded a short-term liability of $2,508. During the six
months ended October 31, 2003, the Company paid $1,879 representing quarterly
cash settlement payments. The Company recorded a net loss of $124 on the
ineffective interest rate hedge for the six months ended October 31, 2003.
9
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 7 - STOCKHOLDERS' EQUITY
-----------------------------
Changes in stockholders' equity during the six months ended October 31, 2003
were as follows:
Stockholders' equity balance at April 30, 2003 $ 67,866
Issuance of common stock in conjunction with:
Exercise of stock options, including tax benefits 21
Employee stock purchase program 111
Fees paid to outside members of the Company's Board of Directors 25
Change in balance of notes receivable from directors and officers 13
Value of contingent common stock warrants 142
Comprehensive income 1,757
-------------
Stockholders' equity balance at October 31, 2003 $ 69,935
=============
Comprehensive Income
The components of comprehensive income are as follows:
Three Months Ended Six Months Ended
------------------------------- -------------------------------
October 31, October 31, October 31, October 31,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net income (loss) $ 1,086 $ 517 $ 524 $ (1,882)
Other comprehensive income (loss):
Unfunded benefit plan obligation, net of tax (2,935) (2,935)
Changes in fair market value of financial
instruments designated as hedges of
interest rate exposure, net of taxes (394)
Write-off of fair market value of ineffective
interest rate hedge, net of tax 2,520
Foreign currency translation adjustment 2,868 197 4,168 6
------------- ------------- ------------- -------------
Comprehensive income $ 1,019 $ 714 $ 1,757 $ 250
============= ============= ============= =============
Notes Receivable from Officers
During Fiscal 2001 and Fiscal 1999, the Company extended unsecured loans to
certain members of management and the Board of Directors (the "Director and
Officer Notes") for the purchase, in the open market, of the Company's common
stock by those individuals. The Director and Officer Notes were full recourse
promissory notes bearing interest at 6.75% and 8.0% per annum, respectively,
with principal and interest payable at maturity on January 2, 2003 and February
3, 2003. During the year ended April 30, 2003, the Company collected $4,502 in
principal and $769 in interest as payments on the Director and Officer Notes and
charged off $681 for uncollectible notes. At October 31, 2003, $40 (net of a
$270 reserve established for uncollectible notes) was outstanding on the
Director and Officer notes.
10
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 8 - 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 Six Months Ended
October 31,October 31, October 31,October 31,
---------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ -----------
Earnings per share:
Net income (loss) from continuing operations $ 1,086 $ 653 $ 1,783 $ (1,961)
Net (loss) income from discontinued operations (136) (1,259) 79
------------ ------------ ------------ ------------
Net income (loss) $ 1,086 $ 517 $ 524 $ (1,882)
============ ============ ============ =============
Weighted average number of
Common shares outstanding 13,396 13,194 13,382 13,174
Potentially dilutive shares* 138 30 92
------------ ------------ ------------ ------------
Total 13,534 13,224 13,474 13,174
============ ============ ============ ============
Basic income (loss) earnings per share:
Net income (loss) from continuing operations $ 0.08 $ 0.05 $ 0.13 $ (0.15)
Net (loss) income from discontinued operations (0.01) (0.09) 0.01
------------ ------------ ------------ ------------
Net income (loss) $ 0.08 $ 0.04 $ 0.04 $ (0.14)
============ ============ ============ ============
Diluted income (loss) earnings per share:
Net income (loss) from continuing operations $ 0.08 $ 0.05 $ 0.13 $ (0.15)
Net (loss) income from discontinued operations (0.01) (0.09) 0.01
------------ ------------ ------------ ------------
Net income (loss) $ 0.08 $ 0.04 $ 0.04 $ (0.14)
============ ============ ============ ===========
* 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. Options to purchase 2,532 and 4,549
shares of common stock were anti-dilutive and outstanding during the six months
ended October 31, 2003 and October 31, 2002, respectively.
11
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 9 - BUSINESS COMBINATIONS
------------------------------
During the six months ended October 31, 2003 and Fiscal 2003, the Company
did not complete any business combinations.
During Fiscal 2002 and Fiscal 2001, the Company made two and eight
acquisitions, respectively, accounted for under the purchase method (the
"Purchased Companies"). These acquisitions were made in order to expand the
Company's presence in the marketplace in which it serves. The results of these
acquisitions have been included in the Company's results from their respective
dates of acquisition. Initial cash consideration and subsequent acquisition
costs paid associated with the acquisition of the Purchased Companies totaled
$6,334, $8,537, $17,494 and $29,989 during the six months ended October 31,
2003, Fiscal 2003, Fiscal 2002 and Fiscal 2001, respectively. The total assets
acquired and earn-outs paid in connection with the Purchased Companies during
the six months ended October 31, 2003, Fiscal 2003, Fiscal 2002 and Fiscal 2001,
were $6,334, $8,537, $18,078 and $39,431, respectively, including intangible
assets of $6,334, $8,537, $16,464 and $20,282, respectively.
The majority of the Purchased Companies 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
acquired companies. During the six months ended October 31, 2003, Fiscal 2003,
Fiscal 2002 and Fiscal 2001, $6,286, $7,659, $9,451 and $6,614, respectively, of
additional purchase consideration was paid by the Company in connection with
earn-out provisions and another $4,839 has been accrued for these earn-out
provisions at October 31, 2003. The additional consideration, whether paid or
accrued, has been reflected in the accompanying balance sheet as goodwill at
October 31, 2003.
NOTE 10 - RESTRUCTURING COSTS
-----------------------------
The Company historically has grown significantly through acquisitions.
However, the Company began to implement a new strategic business plan in Fiscal
2003. Under its new strategic plan, the Company has focused on (i) integrating
its existing core operations to improve profitability and (ii) divesting
non-core operations to pay down debt. The Company did not consummate any
acquisitions during the six months ended October 31, 2003 or in Fiscal 2003 and
does not anticipate pursuing or consummating acquisitions in the near future.
During the six months ended October 31, 2003, the Company recorded a
restructuring charge of $1,021 in connection with its consolidation of envelope
printing facilities in the New York area. The costs mainly were comprised of
future rental payments for a facility the Company vacated in May 2003.
During the six months ended October 31, 2002, the Company reversed into
income a $1,242 restructuring charge taken in the three months ended April 30,
2001 that was no longer required since the Company settled the underlying
contract dispute and expensed $1,463 in strategic restructuring costs associated
with the exploration of other financial, restructuring and strategic
alternatives.
12
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
Under the restructuring plan implemented during Fiscal 2003, the Company
terminated and provided severance benefits to 37 employees. However, certain
severed employees have delayed severance payments. The majority of the workforce
reductions were within the production area and administration.
The following table sets forth the Company's accrued restructuring costs
for the six months ended October 31, 2003.
Facility Severance Other Asset
Closure and and Writedowns
Consolidation Terminations and Costs Total
----------------- ------------- -------------- ------------
Balance at April 30, 2003......................................$ 206 $ 1,845 $ 397 $ 2,448
Additions............................................... 1,021 1,021
Utilizations............................................ (658) (703) (1,361)
---------------- ------------- -------------- ------------
Balance at October 31, 2003....................................$ 569 $ 1,142 $ 397 $ 2,108
=============== ============= ============== ============
NOTE 11 - GOODWILL AND OTHER INTANGIBLE ASSETS
----------------------------------------------
Goodwill consists of the following:
Balance at April 30, 2003 .................................. $ 109,515
Additions............................................ 4,080
Disposals............................................ (64)
-------------
Balance at October 31, 2003................................. $ 113,531
=============
Intangible assets subject to amortization consist of the following:
October 31, April 30,
2003 2003
------------- -------------
Customer lists................................... $ 1,327 $ 1,302
Non-compete agreements........................... 398 398
Other .......................................... 664 664
------------- -------------
2,389 2,364
Less: Accumulated amortization................ (1,095) (1,057)
------------- -------------
Net intangible assets..................... $ 1,294 $ 1,307
============= =============
13
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 12 - SEGMENT REPORTING
---------------------------
The Company transacts business in the United States, Canada and Puerto
Rico. The Company does not allocate corporate overhead by segment in assessing
performance. Corporate expenses and overhead included within the operating
income of the Company's United States operations totaled $1,364 and $1,371 for
the three months ended October 31, 2003 and October 31, 2002, respectively, and
$545 and $3,774 for the six months ended October 31, 2003 and October 31, 2002,
respectively.
The following table sets forth information as to the Company's operations
in its different geographic segments:
Three Months Ended Six Months Ended
---------------------------- ----------------------------
October 31, October 31, October 31, October 31,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Revenues:
---------
United States............................... $ 106,902 $ 122,978 $ 209,438 $ 237,614
Canada...................................... 38,765 33,612 76,500 66,784
Puerto Rico................................. 2,527 2,611 5,159 4,925
------------- ------------- ------------- -------------
Total..................................... $ 148,194 $ 159,201 $ 291,097 $ 309,323
============= ============= ============= =============
Three Months Ended Six Months Ended
---------------------------- ----------------------------
October 31, October 31, October 31, October 31,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Operating Income:
-----------------
United States............................... $ 3,961 $ 5,851 $ 6,713 $ 9,299
Canada...................................... 3,722 2,968 6,605 5,933
Puerto Rico................................. 77 115 290 126
------------- ------------- ------------- -------------
Total..................................... $ 7,760 $ 8,934 $ 13,608 $ 15,358
============= ============= ============= =============
Identifiable assets (at quarter-end):
-------------------------------------
October 31, April 30,
2003 2002
------------- -------------
United States.................................................................. $ 248,567 $ 302,977
Canada......................................................................... 66,236 52,156
Puerto Rico.................................................................... 2,514 3,066
------------- -------------
Total........................................................................ $ 317,317 $ 358,199
============= =============
14
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
NOTE 13 - SALE OF DISCONTINUED OPERATIONS
-----------------------------------------
Effective July 31, 2003, the Company completed the divestiture of certain
non-core print manufacturing operations. The assets and liabilities of the
divested businesses, which had been excluded from the Company's historical
operating results and classified as discontinued operations at April 30, 2003
pursuant to SFAS No. 144, were sold to a financial buyer for $5,000 in gross
proceeds. After payment of expenses, the transaction generated net cash proceeds
of approximately $4,900. The Company used these net proceeds to make certain
earn-out payments that were due in May 2003 under purchase agreements for prior
acquisitions and to reduce outstanding indebtedness with its senior lenders.
With the divestiture, the Company exited the print manufacturing of various
types of specialty packaging, folding boxes and vinyl, flexographic and
silkscreen labels and signs.
Summarized below are the results of discontinued operations for the six months
ended October 31, 2003 and October 31, 2002:
Six Months Ended October 31,
---------------------------------
2003 2002
-------------- --------------
Revenues $ 5,677 $ 13,119
(Loss) income from discontinued operations (2,171) 135
The major classes of assets and liabilities sold included in the consolidated
balance sheet at April 30, 2003 under the captions "Assets of Businesses Held
for Sale" and "Liabilities of Businesses Held for Sale" are as follows:
April 30,
Assets Held for Sale: 2003
------------
Accounts receivable, net $ 3,880
Inventories 3,662
Prepaid expenses and other current assets 61
Property, plant and equipment, net 616
------------
$ 8,219
============
April 30,
Liabilities Held for Sale: 2003
------------
Accounts payable $ 838
Accrued compensation 903
Accrued additional purchase consideration 970
Other accrued liabilities 508
------------
$ 3,219
============
15
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,"
"Workflow Management," "we," "us," and "our") or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements, which are made only as of
the date hereof.
Introduction
We are one of the largest distributors of printed business products in
North America and we are also a leading provider of end-to-end business
management outsourcing solutions, which include vendor-neutral custom print
sourcing, consulting and integrated storage and distribution services, that
allow our customers to control all of their print-related costs. We produce and
distribute a full range of printed business products and provide related
management services to approximately 31,000 customers in North America ranging
in size from small businesses to Fortune 100 companies. We provide customers
with an integrated set of services and information tools that reduce the costs
of procuring, storing, distributing and using printed business products and
produce custom business documents, envelopes, direct mail and commercial
printing. We employ approximately 2,700 persons and have 87 facilities
throughout North America.
As used in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, "Fiscal 2004", "Fiscal 2003" and "Fiscal 2002" refer
to our fiscal years ending April 30, 2004 and ended April 30, 2003 and 2002,
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
our audited consolidated financial statements, and notes thereto, included in
our Annual Report on Form 10-K for the fiscal year ended April 30, 2003.
16
Consolidated Results of Operations
Three Months Ended October 31, 2003 Compared to Three Months Ended October
31, 2002
Revenues. Consolidated revenues decreased 6.9%, from $159.2 million for the
three months ended October 31, 2002, to $148.2 million for the three months
ended October 31, 2003. The decrease in consolidated revenues was primarily
within our distribution, envelope printing and direct mail project management
operations as we continue to experience strong competition and the impact of our
customers re-evaluating their purchasing programs for direct mail advertising,
commercial printing and other related products due to general economic
conditions. We also continue to evaluate customer relationships and renegotiate
or eliminate unprofitable accounts. In addition, revenues for the three months
ended October 31, 2002 benefited from bi-annual political mailings.
International revenues increased 14.0%, from $36.2 million, or 22.8% of
consolidated revenues, for the three months ended October 31, 2002, to $41.3
million, or 27.9% of consolidated revenues, for the three months ended October
31, 2003. The increase in international revenues was primarily due to the
relative strengthening of the Canadian dollar. In local currency, Canadian
dollar revenues increased 0.2% for the three months ended October 31, 2003
versus the three months ended October 31, 2002. International revenues consist
exclusively of revenues generated in Canada and Puerto Rico.
Gross Profit. Gross profit decreased 7.4%, from $44.8 million, or 28.1% of
revenues, for the three months ended October 31, 2002, to $41.5 million, or
28.0% of revenues, for the three months ended October 31, 2003. The decrease in
gross profit was primarily in our envelope, direct mail and commercial printing
units due to: (i) pricing pressures from competition, and (ii) an overall
decrease in manufacturing volumes, described above, resulting in under
absorption of fixed factory overhead.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 6.0%, from $35.9 million, or 22.5% of
revenues, for the three months ended October 31, 2002, to $33.7 million, or
22.8% of revenues, for the three months ended October 31, 2003. The decrease in
selling, general and administrative expenses was primarily due to the cost
savings realized associated with our restructuring plan and aggressive cost
cutting and integration efforts.
Interest Expense, net. Interest expense, net of interest income, decreased
23.1%, from $5.7 million for the three months ended October 31, 2002, to $4.4
million for the three months ended October 31, 2003. This decrease in net
interest expense during the three months ended October 31, 2003 was due to a
decrease in our interest rates under our restructured credit facility and a
decrease in the level of debt outstanding during the period. See "Note 6 to the
Company's Consolidated Financial Statements" of this Form 10-Q and "Liquidity
and Capital Resources" below.
Loss on Ineffective Interest Rate Hedge. On October 16, 2002, our credit
facility was amended so that borrowings under the credit facility bore a
non-LIBOR based fixed interest rate. Thus, under SFAS No. 133 as amended the
Swap became ineffective and could no longer be designated as a cash flow hedge
of variable rate debt. During the three months ended October 31, 2003 and the
three months ended October 31, 2002, we recorded $105,000 and $1.1 million for
the subsequent change in the value of the Swap as a component of income.
Financing Fees and Other Banking Related Costs. On August 1, 2003, we
entered into an amended restructured senior secured credit facility with our
lenders (the "Amended Restructured Credit Facility"). During the three months
ended October 31, 2003, we expensed $0.7 million of unamortized deferred
financing costs per the guidelines of Emerging Issues Task Force ("EITF") 98-14,
"Debtor's Accounting for Changes in Line-of-Credit or Revolving Debt
Arrangements." On January 15, 2003, we entered into a restructured senior
secured credit facility with our lenders (the "Restructured Credit Facility").
During the three months ended October 31, 2002, we expensed $0.8 million in
connection with consultants and other professional fees incurred in the
negotiation and consummation of the Restructured Credit Facility.
17
Abandoned Debt Offering Costs. During the three months ended October 31,
2002 we incurred $174,000 in transaction costs paid in connection with a
proposed private placement of senior secured notes (the "Offering"). Due to
unfavorable market conditions at the timing of the Offering, we decided not to
actively pursue the placement of the senior secured notes. The transaction costs
incurred in connection with the Offering were expensed during the three months
ended October 31, 2002.
Other Expense (Income). Other income, net of other expense decreased
$61,000 from net other income of $3,000 for the three months ended October 31,
2002, to net other expense of $58,000 for the three months ended October 31,
2003. Other income primarily represents the net of gains and/or losses on sales
of equipment and miscellaneous other income and expense items.
Income Taxes. Income taxes from continuing operations increased $982,000
from $0.5 million for the three months ended October 31, 2002, to $1.4 million
for the three months ended October 31, 2003, reflecting effective income tax
rates of 41.2% and 57.0%, respectively. During the three months ended October
31, 2003, the effective income tax rate was greater than the statutory rate due
to treating earnings of our Canadian subsidiary as taxable income in the U.S.
without the ability to use offsetting foreign tax credits. This treatment
resulted from the pledge of our Canadian subsidiary's assets as part of our
January 2003 debt restructuring. During both periods, the effective income tax
rates reflect the recording of tax provisions at the federal statutory rate of
35.0%, plus appropriate state and local taxes.
Discontinued Operations. During Fiscal 2003, we committed to a plan to
dispose of certain non-core businesses. We completed the sale of these non-core
businesses effective July 31, 2003 under our long-term business plan and
strategic objectives. The net loss from discontinued operations during the three
months ended October 31, 2002 includes a loss from operations of $136,000.
Six Months Ended October 31, 2003 Compared to Six Months Ended October 31,
2002
Revenues. Consolidated revenues decreased 5.9%, from $309.3 million for the six
months ended October 31, 2002, to $291.1 million for the six months ended
October 31, 2003. The decrease in consolidated revenues was primarily within our
distribution, envelope printing and direct mail project management operations as
we continue to experience strong competition and the impact of our customers
re-evaluating their purchasing programs for direct mail advertising, commercial
printing and other related products due to general economic conditions. We also
continue to evaluate customer relationships and renegotiate or eliminate
unprofitable accounts. In addition, revenues for the three months ended October
31, 2002 benefited from bi-annual political mailings. We believe that our
inability to make certain earn-out payments due to financial covenants with our
lenders adversely impacted the morale and productivity of some of our most
important employees which in turn also negatively impacted revenues during the
three months ended July 31, 2003.
International revenues increased 13.9%, from $71.7 million, or 23.2% of
consolidated revenues, for the six months ended October 31, 2002, to $81.7
million, or 28.1% of consolidated revenues, for the six months ended October 31,
2003. The increase in international revenues was primarily due to the relative
strengthening of the Canadian dollar. In local currency, Canadian dollar
revenues increased 0.9% for the six months ended October 31, 2003 versus the six
months ended October 31, 2002. International revenues consist exclusively of
revenues generated in Canada and Puerto Rico
Gross Profit. Gross profit decreased 8.3%, from $86.8 million, or 28.1% of
revenues, for the six months ended October 31, 2002, to $79.6 million, or 27.4%
of revenues, for the six months ended October 31, 2003. The decrease in gross
profit was primarily a result of lower margins due to pricing pressures from
competition and a decrease in volumes within our commercial printing, direct
mail and envelope operations due to the sluggish economy and political
uncertainty.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 5.6%, from $71.2 million, or 23.0% of
revenues, for the six months ended October 31, 2002, to $67.2 million, or 23.1%
of revenues, for the six months ended October 31, 2003. The decrease in selling,
general and administrative expenses was due to the realized cost savings and
additional cost initiatives implemented during Fiscal 2002 and Fiscal 2003.
18
Restructuring Costs. During the six months ended October 31, 2003, the
Company incurred $1.0 million in restructuring costs for the consolidation of
certain envelope manufacturing facilities in the New York area. The costs are
mainly comprised of future rental payments for the vacated facility. During the
six months ended October 31, 2002, net restructuring costs totaled $221,000 as
we reversed into income a $1.2 million restructuring charge taken in the three
months ended April 30, 2001 that was no longer required since we settled the
underlying contract dispute and we expensed $1.4 million in strategic
restructuring costs associated with the exploration of other financial,
restructuring and strategic alternatives.
Severance and Other Employment Costs. During the six months ended October
31, 2003, Thomas B. D'Agostino, Sr., the Chairman of the Board of Directors,
resigned from the Board and as Chairman, and released us from any obligation to
pay severance or other amounts under his employment agreement with us. As a
result, during the six months ended October 31, 2003, we reversed into income
approximately $2.2 million, which was previously recorded as an obligation to
Mr. D'Agostino.
Interest Expense, net. Interest expense, net of interest income, decreased
10.8%, from $9.7 million for the six months ended October 31, 2002, to $8.7
million for the six months ended October 31, 2003. This decrease in net interest
expense during the six months ended October 31, 2003 was due to a decrease in
our interest rates under our Restructured Credit Facility and a decrease in the
level of debt outstanding during the period. See "Note 6 to the Company's
Consolidated Financial Statements" of this Form 10-Q and "Liquidity and Capital
Resources" below.
Loss on Ineffective Interest Rate Hedge. On October 16, 2002, our former
credit facility was amended so that borrowings under the credit facility bore a
non-LIBOR based fixed interest rate. Thus, under SFAS No. 133 as amended, the
Swap has become ineffective and can no longer be designated as a cash flow hedge
of variable rate debt. As such, we wrote off $4.3 million for the fair market
value of the ineffective hedge and recorded $1.1 million for the subsequent
changes in the value of the Swap as a component of income. During the six months
ended October 31, 2003, we paid $1.9 million representing cash settlement
payments on the Swap and have $2.5 million accrued at October 31, 2003. Prior to
the Swap becoming ineffective, we recorded $1.7 million as interest expense
during the six months ended October 31, 2002.
Financing Fees and Other Banking Related Costs. During the six months ended
October 31, 2003, we expensed $0.7 million of unamortized deferred financing
costs pertaining to the Amended Restructured Credit Facility as per the
guidelines of Emerging Issues Task Force ("EITF") 98-14, "Debtor's Accounting
for Changes in Line-of-Credit or Revolving Debt Arrangements." During the six
months ended October 31, 2002, we expensed $0.8 million in connection with
consultants and other professional fees incurred in the negotiation and
consummation of the Restructured Credit Facility.
Abandoned Debt Offering Costs. During the six months ended October 31, 2002
we incurred $1.9 million in transaction costs paid in connection with a proposed
private placement of senior secured notes (the "Offering"). Due to unfavorable
market conditions at the timing of the Offering, we decided not to actively
pursue the placement of the senior secured notes. The transaction costs incurred
in connection with the Offering were expensed during the three months ended
October 31, 2002.
Other Expense. Other expense, net of other income, decreased $35,000 from
other expense of $10,000 during the six months ended October 31, 2002 to other
income of $25,000 during the six months ended October 31, 2003. Other expense
primarily represents the net of gains and/or losses on sales of equipment and
miscellaneous other income and expense items.
Income Taxes. Provision for income taxes increased 516.5% from a $0.6
million tax benefit for the six months ended October 31, 2002, to a tax
provision of $2.4 million for the six months ended October 31, 2003, reflecting
effective income benefit and tax rates of 22.6% and 57.1% respectively. During
the six months ended October 31, 2002, the effective income tax rate was lower
due to the tax benefit associated with the restructuring costs, abandoned
software costs, uncollectible notes receivable, severance, and other employment
costs, loss on ineffective interest rate hedge and financing fees and other
banking related costs. During the six
19
months ended October 31, 2003, the effective income tax rate was greater than
the statutory rate due to treating earnings of our Canadian subsidiary as
taxable income in the U.S. without the ability to use offsetting foreign tax
credits. This treatment resulted from the pledge of our Canadian subsidiary's
assets as part of our January 2003 debt restructuring. At October 31, 2003, we
have both short-term and long-term deferred tax assets totaling $17.0 million.
We evaluate recoverability of deferred tax assets based on estimated future
taxable income. To the extent that recovery is deemed not likely, a valuation
allowance is recorded. We believe that as of October 31, 2003 realization of its
deferred tax assets is more likely than not, and thus no valuation allowance is
recorded. During both periods, the effective income tax rates reflect the
recording of tax provisions at the federal statutory rate of 35.0%, plus
appropriate state and local taxes.
Discontinued Operations. During Fiscal 2003, we committed to a plan to
dispose of certain non-core businesses. We completed the sale of these non-core
businesses effective July 31, 2003 under our long-term business plan and
strategic objectives. The net loss from discontinued operations during the six
months ended October 31, 2003 of $1.3 million which includes a write-down in
assets of $1.0 million and a loss from operations of $0.3 million compared to
income from discontinued operations of $79,000 during the six months ended
October 31, 2002. The reason for the decrease in net income during the six
months ended October 31, 2003 related to softness in general economic conditions
in the print industry and further deterioration of these non-core businesses.
Liquidity and Capital Resources
At October 31, 2003, we had a working capital deficit of $80.2 million,
which includes $153.5 million in debt under our existing credit facility, which
has been classified as short-term debt. Our capitalization, defined as the sum
of long-term debt and stockholders' equity, at October 31, 2003 was
approximately $71.1 million.
We use a centralized approach to cash management and the financing of our
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 our revolving
credit facility. Cash at October 31, 2003, primarily represented customer
collections and in-transit cash sweeps from our subsidiaries at the end of the
quarter and cash in Canada that has not been repatriated.
Our anticipated capital expenditures budget for the next twelve months is
approximately $6.0 million. We anticipate that these capital expenditures
primarily will be equipment purchases, leasehold improvements and related costs
we expect to incur in connection with the integration of certain operations.
During the six months ended October 31, 2003, net cash provided by
operating activities was $14.8 million. Net cash used in investing activities
was $3.2 million, which was mainly comprised of $6.3 million used for additional
purchase consideration and $1.9 million used for capital expenditures which was
partially offset by $5.0 million in proceeds from the sale of discontinued
operations. Net cash used by financing activities was $14.3 million, which was
mainly comprised of $11.6 million in net pay-downs on our revolving credit
facility, $1.9 million in settlement payments for the interest rate swap, $0.7
million in payments of deferred financing costs and $0.3 million in payments of
other long-term debt.
During the six months ended October 31, 2002, net cash provided by
operating activities was $4.7 million. Net cash used in investing activities was
$10.6 million, including $8.5 million used for acquisitions and additional
purchase consideration and $2.5 million used for capital expenditures. Net cash
provided by financing activities was $6.9 million, which was mainly comprised of
$11.6 million in net borrowings on our revolving credit facility which was
partially offset by $1.9 million in payments of abandoned debt offering costs,
$1.6 million for the cash settlement of the interest rate hedge, $1.2 million in
payments of deferred financing costs and $0.4 million in payments of other
long-term debt.
We have significant operations in Canada. Net sales from our Canadian
operations accounted for approximately 26.3% of our total revenues for the six
months ended October 31, 2003. As a result, we are subject to certain risks
inherent in conducting business internationally, including fluctuations in
currency
20
exchange rates. Changes in exchange rates may have a significant effect on our
business, financial condition and results of operations.
Effective August 1, 2003 we entered into the Amended Restructured Credit
Facility with our senior lenders. The following discussion reflects the terms of
this amendment.
At April 30, 2003, we had exceeded certain debt covenants with our lenders
that limited capital expenditures and the incurrence of restructuring costs. As
part of the Amended Restructured Credit Facility, our senior lenders waived
these defaults. The Amended Restructured Credit Facility also modified the
calculation of EBITDA for credit facility covenant purposes to exclude the
impact of goodwill impairment and the results of discontinued operations and
amended certain financial covenants for future periods in a manner consistent
with our current business plan and forecasts.
The tranches of debt under the Amended Restructured Credit Facility consist
of: (i) an approximately $100.0 million in availability asset-based revolving
credit facility (the "Revolver") which provides access to working capital
advanced on a borrowing base formula; (ii) an approximately $16.2 million senior
term loan (the "Term Loan A"); and (iii) a $50.0 million senior term loan (the
"Term Loan B"). The Revolver and Term Loan A mature on August 1, 2004. Term Loan
B matures on May 1, 2004. The Revolver contains advance rates of 85% of our
eligible accounts receivable, 60% of our eligible inventories (until February 1,
2004 at which time it reduces to 50%) and $10.0 million against our fixed
assets. Under the Amended Restructured Credit Facility, we have granted our
senior lenders warrants to acquire up to 2.4 million shares of our common stock.
Under the terms of the warrant, the first warrant tranche, for 400,000 shares,
would become exercisable on December 31, 2003 unless by November 30, 2003 we had
delivered a plan acceptable to our lenders to repay all of our obligations under
the Amended Restructured Credit Facility by March 31, 2004. On November 26,
2003, we met the plan delivery requirement with our lenders. Our lenders have
until December 31, 2003 to accept the plan. Additional warrant tranches of
400,000 shares each become exercisable each month for a period of five months
beginning no later than March 31, 2004 but only in the event there remains
outstanding indebtedness under the credit facility on the date the tranche
becomes exercisable. Each 400,000 share warrant tranche would have an exercise
price equal to the fair market value of our common stock on the date the tranche
becomes exercisable.
The outstanding balances (in millions) on the Amended Restructured Credit
Facility at December 12, 2003 were as follows:
Maximum Amount Applicable
Availability Outstanding Interest Rate
------------- ------------- -------------
Revolver $ 100.0 $ 91.2 LIBOR + 5%
Term Loan A 16.2 16.2 LIBOR + 8%
Term Loan B 50.0 50.0 11%, 12%, 13% & 14% for each
calendar quarter of 2003
------------- -------------
$ 166.2 $ 157.4
============= =============
At December 12, 2003, we had $157.4 million outstanding on the Amended
Restructured Credit Facility and, in addition, $3.1 million in outstanding
letters of credit. Our availability under the Amended Restructured Credit
Facility at December 12, 2003 was $5.7 million after inclusion of letters of
credit.
As noted above, the $50.0 million Term Loan B portion of the Amended
Restructured Credit Facility matures on May 1, 2004 and Term Loan A and the
Revolver mature on August 1, 2004. We are currently pursuing various strategic
and refinancing alternatives that would allow us to repay the components of our
credit facility debt by their respective due dates. However, we do not have any
firm commitments with respect to any potential refinancing or similar
transactions, nor do we anticipate generating operating cash flows that would
allow us to repay these obligations directly. There can be no assurance that we
will be able to repay the Amended Restructured Credit Facility by its due date.
In the event we are not able to do so, we will be in default with our lenders
under the Amended Restructured Credit Facility. Any such default could have a
material adverse effect on our business, financial condition and results of
operations.
21
In addition, the Amended Restructured Credit Facility contains a number of
other affirmative covenants related to our business with which we must comply.
These covenants include, but are not limited to, the requirements that (i) we
meet certain liquidity tests before making any earn-out payments as a result of
our prior acquisitions and (ii) we meet certain leverage ratio, interest
coverage ratio, fixed charge ratio, and minimum EBITDA thresholds on an ongoing
basis. There can be no assurance that we will be able to satisfy all or any of
these covenants. Any failure to satisfy these covenants (or any other covenants)
would constitute a default under the Amended Restructured Credit Facility. Any
such default likely would have a material adverse effect on our business,
financial condition and results of operations.
In May 2001, we entered into an interest rate swap agreement to manage
interest rate risk on the variable rate borrowings under our then existing
credit facility. As of October 31, 2003, the swap was recorded at $2.5 million,
which represents the amount which we would have paid to settle the swap at that
date. If we repay the amounts outstanding under the Amended Restructured Credit
Facility with proceeds from any alternate financing, we will be required to
settle the swap at the fair value as of that date. We anticipate using a portion
of the proceeds from any such financing to make this payment.
We historically have grown significantly through acquisitions. However, we
began to implement a new strategic business plan in Fiscal 2003. Under our new
strategic plan, we have focused on (i) integrating our existing core operations
to improve profitability, (ii) divesting non-core operations to pay down debt
and (iii) greater focus on profitable accounts even at the expense of lower
overall revenue. We did not consummate any acquisitions in Fiscal 2003 and we do
not anticipate pursuing or consummating acquisitions in the near future.
Fluctuations in Quarterly Results of Operations
Our envelope and commercial print businesses are subject to seasonal
influences resulting from the lower demand for consumable printed business
products during the summer months which coincides with our fiscal quarters
ending in October. Quarterly results also may be materially affected by
variations in the prices by us for the products we sell, the mix of products
sold and general economic conditions. Therefore, results for any quarter are not
necessarily indicative of results that may be achieved for any subsequent fiscal
quarter or full fiscal year.
Inflation
We do not believe that inflation has had a material impact on our results
of operations during the six months ended October 31, 2003 and 2002.
Critical Accounting Policies and Judgments
Use of Estimates. In preparing our financial statements in conformity with
generally accepted accounting principles, we are required 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. We evaluate our estimates and judgments on an ongoing basis,
including those related to allowance for doubtful accounts, inventory reserves,
impairment of property and equipment, impairment of goodwill and intangible
assets and realization of deferred tax assets. We base our estimates and
judgments on historical experience and on various other factors that we believe
to be reasonable under the circumstances. Actual results may differ from these
estimates.
Revenue Recognition. We recognize revenue for the majority of our products
upon shipment to the customer, upon the transfer of title and at the time risk
of loss passes to the buyer. Under agreements with certain customers, we may
store custom forms for future delivery. In these situations, we typically
receive a warehousing fee for the services we provide. In these cases, delivery
and billing schedules are agreed upon with the customer and revenue is
recognized when manufacturing is complete, title transfers to the customer, the
order is invoiced and there is reasonable assurance as to collectibility. Since
the majority of products are
22
customized, product returns are not significant. We recognize revenues for
warehousing customers' inventory as storage services are provided. We do not
charge separate fees for on-line access and ordering of inventory as these
services are offered to customers as a convenience. Delivery costs billed to
customers are recognized in revenues.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful
accounts, which is reviewed at least quarterly for estimated losses resulting
from the inability of our customers to make required payments. Additional
allowances may be necessary in the future if the ability of our customers to pay
deteriorates.
Inventory Reserves. We maintain a reserve for slow moving or obsolete
inventory, which is reviewed at least quarterly, based upon usage and inventory
age to determine its adequacy. Physical inventories are taken throughout each
fiscal year.
Impairment of Property and Equipment. Property and equipment are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. An estimate of undiscounted
future cash flows produced by the asset, or the appropriate grouping of assets,
is compared with the carrying value to determine whether an impairment exists,
pursuant to the provisions of Statement of Financial Accounting Standards No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets" beginning
in fiscal year 2003.
Impairment of Goodwill and Intangible Assets. During Fiscal 2002, Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets", was issued. We adopted this new standard and as a result, we
ceased to amortize goodwill effective May 1, 2001. In lieu of amortization we
performed an initial impairment review of our goodwill and indefinite-lived
intangible assets as of the implementation date, following which we concluded
that there was no impairment at May 1, 2001. An impairment is recorded when the
fair value of a reporting unit is less than the carrying value of the reporting
unit's net assets. Fair value of a reporting unit is derived from a combination
of discounted future cash flow and comparison to comparable publicly traded
companies. We are required to perform an annual impairment review upon the
completion of each fiscal year. The results of these annual impairment reviews
are highly dependent on management's projection of future results for our
reporting units and there can be no assurance that at the time such reviews are
completed a material impairment charge will not be recorded. An impairment test
was performed at April 30, 2003 at which time an $18.0 million charge was
recorded as a component of operating income.
Realization of Deferred Tax Assets. A valuation allowance is recorded to
reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized. The primary factors we consider are our historical
results, earnings potential determined through use of internal projections and
the nature of income that can be used to realize the deferred tax asset. Based
on our consideration of these factors, we believe it is more likely than not all
of our deferred tax assets will be realized. If future results of operations are
less than expected future assessments may result in a determination that some or
all of the net deferred tax assets are not realizable.
New Accounting Pronouncements
Extinguishment of Debt and Accounting for Leases. In April 2002, the FASB
issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections," that supercedes previous
guidance for the reporting of gains and losses from extinguishment of debt and
accounting for leases, among other things.
SFAS No. 145 requires that only gains and losses from the extinguishment of
debt that meet the requirements for classification as "Extraordinary Items," as
prescribed in APB No. 30, should be disclosed as such in the financial
statements. Previous guidance required all gains and losses from the
extinguishment of debt to be classified as "Extraordinary Items." This portion
of SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with
restatement of prior periods required. Implementation of this portion of the
standard will result in the reclassification of certain losses on extinguishment
of debt previously treated as
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extraordinary items by Workflow.
In addition, SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," as
it relates to accounting by a lessee for certain lease modifications. Under SFAS
No. 13, if a capital lease is modified in such a way that the change gives rise
to a new agreement classified as an operating lease, the assets and obligation
are removed, a gain or loss is recognized and the new lease is accounted for as
an operating lease. Under SFAS No. 145, capital leases that are modified so the
resulting lease agreement is classified as an operating lease are to be
accounted for under he sale-leaseback provisions of SFAS No. 98, "Accounting or
Leases." These provisions of SFAS No. 145 are effective for transactions
occurring after May 15, 2002.
SFAS No. 145 will be applied as required. Adoption of SFAS No. 145 is not
expected to have a material impact on the Company's results of operations,
financial position or cash flows.
Accounting for Exit and Disposal Activities. In June 2002, the FASB issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
which addresses the recognition, measurement, and reporting of costs associated
with exit and disposal activities, including restructuring activities. This
statement requires that liabilities for costs associated with an exit or
disposal activity not be recognized until the liability is incurred and the fair
value can be estimated, except for certain one-time termination benefits. SFAS
No. 146 nullifies Emerging Issues Task Force (EITF) 94-3 which permitted
recognition of a liability for such costs at the date of a company's commitment
to an exit plan. The provisions of SFAS No. 146 are effective, and we have
adopted its provisions, for exit and disposal activities initiated after
December 31, 2002. The provisions of EITF 94-3 will continue to apply for
liabilities previously recorded.
Accounting for Consideration Received from a Vendor. In January 2003, the
Emerging Issues Task Force issued EITF 02-16, "Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor, " which
states that cash consideration received from a vendor is presumed to be a
reduction of the prices of the vendor's products or services and should,
therefore, be characterized as a reduction of cost of goods sold when recognized
in the statement of operations. That presumption is overcome when the
consideration is either a reimbursement of specific, incremental, identifiable
costs incurred to the sell the vendor's products, or a payment for assets or
services delivered to the vendor. EITF 02-16 is effective, and we have adopted
it provisions, for arrangements entered into after December 31, 2002.
Guarantor's Accounting for Guarantees. In December 2002, the FASB issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, " which
provides for additional disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations and requires, under certain
circumstances, a guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. We have adopted the disclosure requirements for Fiscal 2003 and do
not expect the recognition and measurement provisions of Interpretation No. 45
to have an effect on our consolidated financial statements.
Factors Affecting the Company's Business
The terms of our amended credit facility require us to repay at least $50.0
million of debt by May 1, 2004 and to repay our remaining credit facility
obligations by August 1, 2004. There can be no assurance that we will be able to
satisfy these obligations.
Under the terms of an amendment to our credit facility that we entered into
with our senior lenders effective as of August 1, 2003, the due date for the
$50.0 million term loan was extended from December 31, 2003 until May 1, 2004
and the due dates for another term loan and the revolving portion of the
facility were accelerated to August 1, 2004. We are currently pursuing various
strategic and refinancing alternatives that would allow us to repay our credit
facility obligations by their respective due dates. However, we do not have any
firm commitments with respect to any potential refinancing or similar
transactions, nor do we anticipate generating operating cash flows that would
allow us to repay these obligations directly. There can be no
24
assurance that we will be able to repay our credit facility obligations by their
respective due dates. In the event we are unable to do so, our lenders would
have the right to declare our entire approximately $170.0 million credit
facility in default and foreclose on our assets unless we obtained a waiver or
amendment to the credit facility. As a result, the inability to repay our credit
facility obligations would have a material adverse effect on our business,
financial condition and results of operations.
Under the terms of our amended credit facility, we have granted our lenders
warrants to acquire up to 2.4 million shares of our common stock. These warrants
could have a dilutive effect on our existing stockholders.
Under the terms of our amended credit facility, we have granted our senior
lenders warrants to acquire up to 2.4 million shares of our common stock, which
would represent approximately 15.2% of our outstanding common stock if the
warrants were exercised. Under the terms of the warrant, the first warrant
tranche, for 400,000 shares, would become exercisable on December 31, 2003
unless, by November 30, 2003, we had delivered a plan acceptable to our lenders
to repay all of our obligations under our credit facility by March 31, 2004. On
November 26, 2003, we met the plan delivery requirement with our lenders. Our
lenders have until December 31, 2003 to accept the plan. Additional warrant
tranches of 400,000 shares each become exercisable each month for a period of
five months beginning no later than March 31, 2004, but only in the event there
remains outstanding indebtedness under the credit facility on the date the
tranche becomes exercisable. Each warrant tranche would have an exercise price
equal to the fair market value of our common stock on the date the tranche
becomes exercisable.
To the extent we are unable to refinance or otherwise repay our credit
facility obligations by the dates on which the various warrant tranches become
exercisable, our lenders will have the right to acquire shares of our common
stock up to a maximum of 2.4 million shares. These warrants would have a
dilutive impact on our existing stockholders to the extent that our lenders ever
exercise the warrants at exercise prices that are less than the fair market
value of our common stock on the date of exercise. Any dilutive impact, or
potentially dilutive impact, of the warrants could adversely affect the market
price of our common stock.
In order to remain in compliance with our credit facility, we have breached our
obligations to pay earn-outs under numerous purchase agreements for prior
acquisitions. These breaches have had, and may continue to have, an adverse
impact on our business.
The terms of most of our purchase agreements for prior acquisitions require
us to pay earn-outs to the former owners of the acquired businesses. In many
cases, the earn-out recipients are employed by us and are critical to
maintaining good relationships with some of our best customers. Under the terms
of an amendment to our credit facility that we entered into with our senior
lenders in January 2003, we were required to defer or otherwise not pay at least
$4.0 million of earn-outs due in May 2003.
Recipients of approximately $1.0 million of earn-out payments voluntarily
agreed to accept subordinated notes due in 2005 in lieu of receiving a cash
earn-out payment in May. However, many earn-out recipients were not willing to
accept these notes. As a result, to remain in compliance with our credit
facility, we were required to breach our earn-out obligations, or in one case
deliver a short-term promissory note, with respect to individuals entitled to
approximately $3.0 million in earn-out payments. Under the terms of the
amendment to the credit facility that we entered into with our senior lenders on
August 1, 2003, we were allowed to make these earn-out payments that were
previously required to be deferred. However, we believe that the earn-out
breaches have had an adverse effect on the morale and productivity of some of
our most important employees and this adverse effect may impact our operations
on a long-term basis.
We have previously announced that we are pursuing various strategic and
refinancing alternatives, including a potential sale of the Company. Pursuing
the sale of the Company or other strategic alternatives could have a disruptive
effect on our employees and our relationships with our customers and suppliers,
regardless of whether any transaction is consummated.
As previously announced in two public press releases, our Board of
Directors is pursuing various strategic and refinancing alternatives to address
our credit facility obligations, including a potential sale of the
25
Company. The inherent uncertainties surrounding our pursuit of strategic and
refinancing alternatives, and in particular the uncertainties associated with
the potential sale of the Company, could have disruptive effects on our
employees and our relationships with our customers and suppliers. These
disruptive effects could adversely impact our business, financial condition and
results of operations.
Depending on the strategic or refinancing alternatives we ultimately pursue to
address our credit facility obligations, we may have to issue a significant
amount of our equity to lenders and/or investors. Any such issuance of equity
could have a significant dilutive impact on our existing stockholders.
In order to address our credit facility obligations, we may be required to
refinance all or a portion of our debt with equity and/or debt investments by
third parties. Any such transactions could require that we issue lenders and/or
investors a significant amount of our common stock or potentially shares of a
newly created class of preferred stock. Any such issuance of common or preferred
stock could have a significant dilutive impact on our existing stockholders and
could adversely impact the market price of our common stock.
Our credit facility subjects us to a number of financial covenants. If our
financial results in future periods are not what we anticipate, we likely will
breach one or more of these covenants. Any such breaches could have a material
adverse impact on our business and financial condition.
The terms of our credit facility require us to comply with certain
financial covenants, including minimum liquidity and minimum EBITDA covenants.
Based on our current business plans and prospects, we believe that we will be
able to satisfy these covenants on an ongoing basis. However, in the event that
our financial results in future periods are not what we anticipate, then we
likely will breach one or more of these covenants. In the event of any such
breaches, our lenders would have the right to declare our credit facility in
default and foreclose on our assets unless we obtain waivers for the breaches.
There can be no assurance that our lenders will provide waivers in the event we
breach any covenants in future periods.
Economic events and outside influences from world events have adversely affected
us and could affect our business adversely in future periods.
The U.S. economy has had an adverse effect on our sales and subsequent
profit in recent periods and a continued lack of economic growth could affect
our business adversely in future periods. Changes in economic conditions that
affect customer buying patterns have an impact on our business. Additionally,
world events such as the recent war in the Middle East, anthrax in the U.S. and
SARS and Mad Cow disease in Canada have adversely impacted many of our operating
units. There can be no assurances that events such as these will not impact our
business negatively in the future.
Thomas B. D'Agostino, Sr., a founder of the Company and former Chairman and
Chief Executive Officer, and Thomas B. D'Agostino, Jr., former President of our
Solutions Division, are no longer directors of, or employed by, the Company.
Each of these individuals has the ability to compete against the Company if he
desires. Any such competition could adversely impact our business.
In March 2003, we terminated the employment of Thomas B. D'Agostino, Jr.,
the President of our Solutions Division, and he subsequently resigned as a
director. In October 2003, Thomas B. D'Agostino, Sr. resigned as a director,
officer and employee. Under the terms of their respective employment
separations, each of these individuals is entitled to compete against the
Company if he so desires. We believe that Mr. D'Agostino, Jr. has already begun
some competitive activities within our industry and solicited some of our
employees. However, the majority of our key managers and performers have
employment contracts containing non-compete provisions which we believe would
preclude them from joining Mr. D'Agostino, Jr.
Both of these individuals have longstanding relationships with many of our
key employees and key customers. In the event that either or both of these
individuals choose to actively compete against the Company, there can be no
assurance that any such competitive efforts will not adversely impact our
business.
For additional risk factors, refer to our Annual Report on Form 10-K for the
fiscal year ended April 30, 2003.
26
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our financial instruments include cash, accounts receivable, accounts
payable, long-term debt and an interest rate swap. Market risks relating to the
Company's operations result primarily from changes in interest rates. Our
borrowings under our credit facility are primarily dependent upon LIBOR rates.
The estimated fair value of long-term debt approximates its carrying value at
October 31, 2003.
We do not hold or issue derivative financial instruments for trading
purposes. On May 3, 2001, we entered into an interest rate swap agreement (the
"Swap") with various lending institutions at no cost to us. The Swap's effective
date is August 1, 2001 with a termination date of March 10, 2004. We exchanged
our variable interest rate on $100.0 million in credit facility debt for a fixed
3-month LIBOR of approximately 5.10% plus our interest rate spread under our
credit facility. The Swap was entered into to manage interest rate risk on the
variable rate borrowings under our revolving credit portion of our debt. This
interest rate swap has the effect of locking in, for a specified period, the
base interest rate we will pay on the $100.0 million notional principal amount
established in the Swap. As a result, while this hedging arrangement is
structured to reduce our exposure to interest rate increases, it also limits the
benefit we might otherwise have received from any interest rate decreases. The
Swap is cash settled quarterly, with the Swap's carrying value adjusted for
amounts paid or received. If 3-month LIBOR were to increase or decrease by 1.0%,
the impact to us would be a cash savings of $1.0 million in annual interest
expense or additional annual cash interest expense of $1.0 million over the
interest charged on $100.0 million in debt under the variable 3-month LIBOR. Any
such change in interest rates would have a related impact on the Swap in that a
1% increase or decrease would have an impact on the fair value of the swap of
approximately $1.0 million.
Item 4. Controls and Procedures
(a) Within the 90-day period prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Based upon the
evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to
the Company (including its consolidated subsidiaries) required to be
included in the Company's Exchange Act filings.
(b) There have been no significant changes in the Company's internal
controls or in other factors which could significantly affect its
internal controls subsequent to the date the Company carried out its
evaluation.
27
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
** 10.90 Indemnification Agreement dated October 28, 2003 by and between
Workflow Management, Inc. and Michael L. Schmickle.
** 10.91 Indemnification Agreement dated October 28, 2003 by and between
Workflow Management, Inc. and Gary W. Ampulski.
** 10.92 Indemnification Agreement dated October 28, 2003 by and between
Workflow Management, Inc. and James J. Maiwurn.
** 10.93 Indemnification Agreement dated October 28, 2003 by and between
Workflow Management, Inc. and Roger J. Pearson.
** 10.94 Indemnification Agreement dated October 28, 2003 by and between
Workflow Management, Inc. and Peter Redding.
** 10.95 Indemnification Agreement dated October 28, 2003 by and between
Workflow Management, Inc. and Gerald F. Mahoney.
** 10.96 Indemnification Agreement dated October 28, 2003 by and between
Workflow Management, Inc. and Thomas A. Brown, Sr.
** 31.1 Section 302 - Chief Executive Officer
** 31.2 Section 302 - Chief Financial Officer
** 32.1 Section 906 - Chief Executive Officer
** 32.2 Section 906 - Chief Financial Officer
--------------------------------------------------------------------
** Filed herewith.
(b) Reports on Form 8-K
1. The Company filed a Form 8-K on August 8, 2003, under Item 9. The Form
8-K contains a press release regarding an amendment to the Company's
credit facility and a sale by the Company of its discontinued
operations.
2. The Company filed a Form 8-K on September 16, 2003, under Item 9. The
Form 8-K contains a press release regarding the Company's financial
and operating results for the fiscal quarter ended July 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORKFLOW MANAGEMENT, INC.
December 15, 2003 By: /s/ Gary W. Ampulski
------------------------- --------------------
Date Gary W. Ampulski
President and Chief Executive Officer
(Principal Executive Officer)
December 15, 2003 By: /s/ Michael L. Schmickle
-------------------------- ------------------------
Date Michael L. Schmickle
Executive Vice President, Chief Financial
Officer, Secretary and Treasurer (Principal
Financial Officer and Principal Accounting
Officer)
29