Attached files
file | filename |
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8-K/A - FORM 8-K/A - STANDARD REGISTER CO | sr8ka101413.htm |
EX-23 - EXHIBIT 23.1 - STANDARD REGISTER CO | ex231.htm |
EX-99 - EXHIBIT 99.2 - STANDARD REGISTER CO | ex992.htm |
EX-99 - EXHIBIT 99.3 - STANDARD REGISTER CO | ex993.htm |
EXHIBIT 99.1
Workflow Holdings, LLC
and Subsidiaries
Consolidated Financial Statements
As of December 31, 2012 and 2011 and
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
Workflow Holdings, LLC and Subsidiaries
Index
December 31, 2012
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Report of Independent Auditors | 1 |
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Consolidated Financial Statements |
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Consolidated Balance Sheet | 2 |
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Consolidated Statement of Operations | 3 |
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Consolidated Statement of Cash Flows | 4 |
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Notes to the Consolidated Financial Statements | 5 - 18 |
Independent Auditor's Report
To the Board of Directors and Members
of Workflow Holdings, LLC
We have audited the accompanying consolidated financial statements of Workflow Holdings, LLC and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2012 and December 31, 2011, and the related consolidated statements of operations and cash flows for the year ended December 31,2012 and the period from March 2, 2011 (commencement of operations) to December 31, 2011.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Workflow Holdings, LLC and its subsidiaries at December 31, 2012 and December 31, 2011, and the results of its operations and its cash flows for the year ended December 31, 2012 and the period from March 2, 2011 (commencement of operations) to December 31, 2011 in accordance with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
Cincinnati, OH
April 30, 2013
Workflow Holdings, LLC and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2012 and 2011
(in thousands)
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| December 31, | December 31, | |
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| 2012 |
| 2011 |
Assets |
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Current Assets |
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| Cash and cash equivalents |
| $ 18,833 |
| $ 19,353 | |||||
| Accounts receivable, net |
| 59,208 |
| 61,268 | |||||
| Inventories, net |
| 22,654 |
| 26,716 | |||||
| Prepaid and other current assets |
| 9,258 |
| 9,974 | |||||
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| Total current assets |
| 109,953 |
| 117,311 | |
Property, plant and equipment, net |
| 49,723 |
| 53,565 | ||||||
Intangible assets, net |
| 96,677 |
| 114,360 | ||||||
Goodwill, net |
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| 33,927 |
| 33,927 | |||||
Other assets |
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| 2,929 |
| 2,237 | |||||
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| Total assets |
| $ 293,209 |
| $ 321,400 | |
Liabilities and Members' Equity |
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Current Liabilities |
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| Current maturities of long-term debt |
| $ 8,236 |
| $ 8,319 | |||||
| Accounts payable |
| 27,853 |
| 32,045 | |||||
| Accrued liabilities |
| 26,271 |
| 28,288 | |||||
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| Total current liabilities |
| 62,360 |
| 68,652 | |
Long-term debt, less current maturities |
| 307,156 |
| 279,730 | ||||||
Other long-term liabilities |
| 1,950 |
| 3,262 | ||||||
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| Total liabilities |
| 371,466 |
| 351,644 | |
Commitments and contingencies (Notes 13 and 14) |
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Members' Deficit |
| (78,257) |
| (30,244) | ||||||
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| Total liabilities and members' deficit |
| $ 293,209 |
| $ 321,400 |
The accompanying notes are an integral part of these consolidated financial statements.
2
Workflow Holdings, LLC and Subsidiaries
Consolidated Statements of Operations and Changes in Members Equity (Deficit)
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
(in thousands)
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| Year Ended |
| Period from |
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| December 31, |
| March 2, 2011 to |
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| 2012 |
| December 31, 2011 |
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Net revenues | $ 459,354 |
| $ 413,996 | ||||||
Cost of goods and services | 309,944 |
| 287,762 | ||||||
Amortization of inventory revaluation | - |
| 3,412 | ||||||
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| Gross profit | 149,410 |
| 122,822 | |||
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Selling, general and administrative expenses | 127,482 |
| 112,953 | ||||||
Amortization of intangibles | 17,683 |
| 14,736 | ||||||
Restructuring charges | 1,800 |
| 9,140 | ||||||
Reorganization charges | 353 |
| 2,030 | ||||||
Impairment of goodwill | - |
| 20,924 | ||||||
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| Operating income (loss) | 2,092 |
| (36,961) | |||
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Other expense |
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| Interest expense, net | (50,105) |
| (35,483) | |||||
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| Net loss | $ (48,013) |
| $ (72,444) | |
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Members' Equity (Deficit) |
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Beginning of period | (30,244) |
| 42,200 | ||||||
End of period | $ (78,257) |
| $ (30,244) |
The accompanying notes are an integral part of these consolidated financial statements.
3
Workflow Holdings, LLC and Subsidiaries
Consolidated Statements of Cash Flows
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
(in thousands)
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| Period from | |
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| Year Ended | March 2, 2011 | ||
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| December 31, | to December 31, | ||
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| 2012 |
| 2011 | |
Cash flows from operating activities |
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Net loss |
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| $ (48,013) |
| $ (72,444) | |||||||
| Adjustments to reconcile net loss to net cash provided by | |||||||||||
| operating activities |
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| Loss (gain) on sale of fixed assets |
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| 327 |
| (148) | |||||
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| Depreciation and amortization |
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| 29,069 |
| 24,498 | |||||
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| Impairment of goodwill |
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| - |
| 20,924 | |||||
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| Interest paid-in-kind |
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| 33,590 |
| 18,448 | |||||
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| Amortization of deferred financing fees |
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| 715 |
| 95 | |||||
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| Amortization of fair value adjustment on debt |
| 1,881 |
| 1,702 | ||||||
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| Amortization of inventory revaluation |
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| - |
| 3,412 | |||||
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| Changes in operating assets and liabilities |
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| Decrease in accounts receivable |
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| 2,060 |
| 12,096 | ||||
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| Decrease in inventories |
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| 4,062 |
| 1,567 | ||||
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| Decrease in other current assets |
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| 716 |
| 4,757 | ||||
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| Decrease (increase) in other long term assets |
| 74 |
| (88) | |||||
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| (Decrease) increase in accounts payable and accrued expenses |
| (5,730) |
| 121 | |||||
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| Decrease in long term liabilities |
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| (1,312) |
| (65) | ||||
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| Net cash provided by operations before |
| 17,439 |
| 14,875 | ||||
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| reorganization items |
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| Net cash used for reorganization items |
| (1,213) |
| (7,690) | |||
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| Net cash provided by operating activities |
| 16,226 |
| 7,185 | |||
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Cash flows from investing activities |
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Proceeds from sale of property, plant and equipment |
| 95 |
| 180 | ||||||||
Expenditures for property, plant and equipment |
| (7,880) |
| (7,381) | ||||||||
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| Net cash used in investing activities |
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| (7,785) |
| (7,201) | ||
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Cash flows from financing activities |
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Payments on long term debt |
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| (8,290) |
| (3,213) | |||||||
Deferred financing fees |
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| (671) |
| (659) | |||||||
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| Net cash used in financing activities |
| (8,961) |
| (3,872) | ||
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| Net decrease in cash and equivalents |
| (520) |
| (3,888) | ||
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Cash |
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Beginning of period |
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| 19,353 |
| 23,241 | |||||||
End of period |
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| $ 18,833 |
| $ 19,353 | |||||||
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Supplemental disclosures of cash flow information |
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| Cash paid for interest |
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| $ 13,962 |
| $ 15,132 | ||||||
| Cash paid for restructuring costs and management fees | $ 3,643 |
| $ 8,863 | ||||||||
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Noncash investing and financing activities |
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| Deferred financing fees paid-in-kind |
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| $ 811 |
| $ 739 | ||||||
| Capital lease obligations |
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| $ 87 |
| $ 162 |
The accompanying notes are an integral part of these consolidated financial statements.
4
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
1.
Background
Formation and Business of the Company
Workflow Holdings, LLC (the Company), a Delaware Limited Liability Company was formed on December 28, 2010. On March 2, 2011 (Effective Date) the Company acquired certain assets and assumed certain liabilities of WF Capital Holdings, Inc. and Subsidiaries (WF Holdings) as part of WF Holdings Chapter 11 Plan of Reorganization approved by the bankruptcy court on February 25, 2011. The Company is privately owned.
The Company sources and distributes a full range of printed business documents and branded merchandise and provides related management services to its customers ranging in size from global corporations and major non-profit organizations to mid-size and smaller companies throughout the United States of America. The Company provides customers with integrated services and information tools to manage their print and branded merchandise needs through its sourcing and manufacturing capabilities, as well as assisting customers with warehousing, logistics and supply chain management.
Fresh Start Accounting
In accordance with Accounting Standards Codification (ASC) 852, Reorganizations, the Company adopted fresh start accounting and as a result, the assets acquired and liabilities assumed were recorded at their respective fair values at the Effective Date. The Company selected an accounting convenience date of February 28, 2011 for purposes of valuing the assets and liabilities. The activity between the Effective Date and the convenience date did not result in a material difference in the results. The Company incurred reorganization costs including professional fees in the amounts of $0.4 million for the year ended December 31, 2012 and $2.0 million for the period ended December 31, 2011.
The Companys reorganization value includes an estimated enterprise value of $316 million, which, at that time, represented the best estimate of fair value by the management of WF Holdings within the range of values established by the bankruptcy court. This range of enterprise values was determined using certain financial analysis methodologies including comparable companies analysis and the discounted cash flow analysis as well as considering the purchase price. The application of these methodologies requires certain judgments and assumptions including financial projections and current market conditions. The Companys reorganization value was first allocated to its tangible assets and identifiable intangible assets and the excess of reorganization value over the fair value of these assets was recorded as goodwill.
5
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
The fair value of the assets acquired and liabilities assumed were recorded as follows (in thousands):
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| March 2, |
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| 2011 |
| Assets |
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| Current Assets |
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| Cash and cash equivalents |
| $ 23,241 | |||||
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| Accounts receivable |
| 73,364 | |||||
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| Inventories |
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| 31,695 | ||||
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| Prepaid and other current assets |
| 14,731 | |||||
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| Total current assets |
| 143,031 | |
| Property, plant and equipment |
| 55,816 | ||||||
| Intangible assets |
| 129,096 | ||||||
| Goodwill |
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| 54,851 | |||
| Other assets |
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| 846 | |||||
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| Total assets |
| $ 383,640 | |
| Liabilities and Members' Equity |
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| Current Liabilities |
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| Current maturities of long-term debt |
| $ 3,259 | |||||
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| Accounts payable |
| 39,454 | |||||
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| Accrued liabilities |
| 24,792 | |||||
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| Total current liabilities |
| 67,505 | |
| Long-term debt, less current maturities |
| 270,608 | ||||||
| Other long-term liabilities |
| 3,327 | ||||||
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| Total liabilities |
| 341,440 | |
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| Members' Equity |
| 42,200 | ||||||
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| Total Members' Equity |
| 42,200 | |
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| Total liabilities and members' equity |
| $ 383,640 |
2.
Basis of Presentation and Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements and related notes thereto include the assets, liabilities, revenues and expenses of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Certain amounts in the financial statements for the period ended December 31, 2011 have been reclassified to conform to the year ended December 31, 2012 presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of certain assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of certain revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates reflected in the consolidated financial statements include allowance for doubtful accounts reserves, inventory reserves, fair value of assets acquired and liabilities assumed, including
6
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
goodwill and intangibles and their respective useful lives and recoverability, and accruals for workers compensation and medical claims.
Cash and Cash Equivalents
The Company considers cash investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents held at financial institutions did not typically exceed the amounts guaranteed by federal agencies.
Accounts Receivable
Trade accounts receivable are recorded at invoice amount and do not bear interest. Receivables arising from sales to customers represent bonafide claims and are not collateralized. As a result, management continually monitors the financial condition of its customers to reduce the risk of loss. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Past due balances are reviewed individually for collectability. Account balances are charged off against the allowance when it is probable that the receivable will not be collected. If circumstances related to customers change, the Company will further adjust estimates of the recoverability of receivables. The Company does not have any off-balance sheet credit exposure related to its customers.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the specific identification method or on a first-in, first-out (FIFO) basis. Inventory manufactured by the Company includes the cost of materials, labor and manufacturing overhead. The Company maintains a reserve for slow moving or obsolete inventory, which is based upon usage and net realizable value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Additions and improvements that extend the life of assets are capitalized. Maintenance and repairs are expensed as incurred. Depreciation of property, plant and equipment is calculated using the straight-line method over the estimated useful lives of respective assets, beginning when the assets are placed in service. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the remaining term of the lease, after considering the likelihood of renewals. Gains and losses on the disposition of property, plant and equipment are computed based upon the difference between the sales proceeds received and the net book value of the property, plant and equipment at the date of the disposal.
Internally Developed Software
Internal costs incurred to develop software such as direct salaries and benefits are expensed as incurred as a component of selling, general and administrative expenses until the application development stage. Internal costs are capitalized through the development stage of the software and cease when the software is technologically feasible and substantially ready for its intended use. External costs related to internally developed software, such as outside programmers and consultants, are capitalized and amortized over the expected useful life of the software, normally three to five years. The Company capitalized software development costs of $1.1 million for the year ended December 31, 2012 and $0.8 million for the period ended December 31, 2011.
Intangible Assets
Intangible assets consist of customer relationships and trademarks and trade names arising from the allocation of enterprise value at the Effective Date. These intangibles are amortized using the straight-line method over their estimated useful lives. The Company reviews its intangibles for
7
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
Impairment of Long Lived Assets
The Company evaluates long-lived assets such as property, plant and equipment, including internally developed software costs and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An estimate of undiscounted future cash flows produced by the assets, or the appropriate grouping of assets, is compared with the carrying values to determine whether an impairment exists. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset exceeds its fair value, which is generally determined based on its estimated discounted cash flows. The 2012 assessment of long lived assets resulted in no impairment charge.
Goodwill
Goodwill represents the total consideration paid in excess of the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in a business acquisition. In accordance with ASC 350-20-35, Intangibles Goodwill and Other, Goodwill, Subsequent Measurement, the Company determined that there is a single segment and reporting unit to which goodwill will be assigned. The provisions of ASC 350-20-35 (i) prohibit the amortization of goodwill and indefinite-lived intangible assets; (ii) require goodwill and indefinite-lived intangible assets be tested annually for impairment, and in any interim periods if certain events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount; and (iii) require that the Companys operations be formally identified into reporting units for the purpose of assessing potential future impairments of goodwill. The Companys annual goodwill impairment analysis compares the reporting units estimated fair value to the carrying value of the reporting unit to determine if an impairment is indicated. If the carrying amount of the reporting unit exceeds the estimated fair value, the Company performs an additional fair value measurement to determine the impairment loss to be recorded to operations in the period identified. During the fourth quarter of 2011, the Company completed its annual impairment testing using these valuation techniques and recorded a goodwill impairment charge of approximately $20.9 million. The decline in fair value of the reporting unit below its book value was primarily the result of a decrease in projected cash flows of the reporting unit as compared to those used to determine the range of estimated enterprise values established by the bankruptcy court and the resulting estimated enterprise value used for fresh start reporting. The 2012 analysis of goodwill resulted in no impairment charge.
Revenue Recognition
The Company recognizes substantially all of its revenue when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the price to the buyer is fixed and determinable; and collection is reasonably assured. In accordance with agreements with certain customers, product revenue is recognized when manufacturing is complete, title and risk of loss transfer to the customer and there is reasonable assurance as to collectability. Under agreements with certain of these customers, custom products may be warehoused by the Company for future customer directed delivery. In these situations, the Company receives a logistics and/or warehouse fee for the services it provides. The Company accounts for the warehousing and product components as separate units of accounting and recognizes revenue associated with the warehousing when the service is rendered. As the majority of products are customized, product returns are not significant; however, the Company accrues for the estimated amount of customer credits at the time of sale.
8
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
The Company recognizes revenue related to third party produced products on a gross basis, as it bears the risks and benefits associated with revenue-generating activities by: (1) acting as a principal in the transaction; (2) establishing prices; (3) being responsible for fulfillment of the order; (4) taking the risk of loss for collection, delivery and returns; and (5) marketing the products.
Customers rebates are recognized on an accrual basis in the period earned and are recorded as a reduction in net revenues. The Company includes delivery fees billed to customers in revenues. Sales taxes billed to customers are recorded on a net basis and excluded from net revenues on the consolidated statements of operations.
Cost of Goods and Services
Product costs are expensed as cost of goods and services at the time of revenue recognition. Vendor rebates are recognized on an accrual basis in the period earned and are recorded as a reduction to inventory or cost of goods and services. Costs of services are expensed when the service is rendered. The Company records delivery and warehouse occupancy cost in the cost of goods and services. Cost of goods sold for the period from March 2, 2011 to December 31, 2011 includes a non cash charge for amortization of inventory revaluation of $3.4 million as a one time adjustment required by fresh start accounting.
Fair Value Measurements
The Company adopted ASC 820-10, Fair Value Measurements and Disclosures, which establishes a framework for measuring fair value that is based on the inputs market participants use to determine fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. ASC 820-10-35-37 describes a hierarchy of three levels of input that may be used to measure fair value:
Level 1
Inputs based on quoted prices in active markets for identical assets and liabilities.
Level 2
Inputs based on other quoted prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3
Unobservable inputs that reflect the reporting entitys own assumptions. These inputs into the determination of fair value require significant judgment and estimation by management.
The Companys material financial instruments consist primarily of cash and cash equivalents and long-term debt. The fair value of cash and cash equivalents approximates its carrying value.
The carrying amount of debt reported in the consolidated balance sheet as of December 31, 2012 is $315.4 million. Using a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, and risk profile, the Company has determined the fair value of its debt to be approximately $228 million at December 31, 2012. Considerable judgment is required in interpreting market data to develop estimates of fair value. The fair value estimate presented herein is not necessarily indicative of the amount that the Company or the debt holders could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value.
9
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
New Accounting Pronouncement
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05 Presentation of Comprehensive Income (ASU 2011-05), which requires the presentation of comprehensive income in either: (i) a continuous statement of comprehensive income or (ii) two separate, but consecutive statements. The adoption and retrospective application of this pronouncement did not have a material impact on the Companys consolidated financial statements.
In February 2013, the FASB issued ASU 2013-02 Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amends the requirements of ASU 2011-05 to disclose the effect of items reclassified out of accumulated comprehensive income separately in the income statement. ASU 2013-02 will become effective for the Company in 2013. The adoption of this pronouncement is not expected to have a material impact on the Companys consolidated financial statements
In September 2011, the FASB issued ASU No. 2011-08 Testing Goodwill for Impairment, which provides companies with the option of performing a qualitative assessment before calculating the value of a reporting unit in step one of its goodwill impairment test. If a company determines, on the basis of qualitative factors, the fair value of a reporting unit is more likely than not to be less than the carrying amount, the two step impairment test would be required to be performed. Otherwise, further impairment testing would not be needed. The adoption of this pronouncement did not have a material impact on the Companys consolidated financial statements.
In February 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which provides companies the option to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. Under this amendment, companies would not be required to calculate the fair value of an indefinite-lived intangible asset unless it determines, based on qualitative assessment, that it is not more than likely the asset is impaired. The adoption of this pronouncement did not have a material impact on the Companys consolidated financial statements.
3.
Restructuring
The Company incurred restructuring costs related to the closing and consolidation of facilities, employee severance and professional fees incurred in connection with the execution of restructuring initiatives in the amounts of $1.8 million for the year ended December 31, 2012 and $9.1 million for the period ended December 31, 2011. The remaining restructuring liability is $1.1 million and is included in accrued liabilities on the consolidated balance sheet.
10
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
The following table sets forth the accrued restructuring liabilities (in thousands):
|
| Severance |
|
|
|
|
|
|
|
| and |
| Facilities |
| Professional |
| |
|
| personnel- |
| closings and |
| Fees and |
|
|
|
| related costs |
| consolidations |
| Other |
| Total |
| March 2, 2011 | $ 529 |
| $ 175 |
| $ 7 |
| $ 711 |
| 2011 expenses | 4,006 |
| 1,768 |
| 3,366 |
| 9,140 |
| Paid in 2011 | (3,032) |
| (1,567) |
| (3,373) |
| (7,972) |
| December 31, 2011 | $ 1,503 |
| $ 376 |
| $ - |
| $ 1,879 |
| 2012 expenses | 1,110 |
| 494 |
| 196 |
| 1,800 |
| Paid in 2012 | (2,088) |
| (599) |
| 120 |
| (2,567) |
| December 31, 2012 | $ 525 |
| $ 271 |
| $ 316 |
| $ 1,112 |
4.
Accounts Receivable, net
Accounts receivable, net, consists of the following (in thousands):
|
| December 31, |
| December 31, |
|
| 2012 |
| 2011 |
|
|
|
|
|
| Accounts receivable | $ 60,436 |
| $ 62,627 |
| Less allowance for bad debts | (1,228) |
| (1,359) |
| Accounts receivable, net | $ 59,208 |
| $ 61,268 |
The changes in the allowance for doubtful accounts consist of the following (in thousands):
| March 2, 2011 |
| $ 1,252 |
| Additions |
| 487 |
| Write offs, net of recoveries |
| (380) |
| December 31, 2011 |
| $ 1,359 |
| Additions |
| 347 |
| Write offs, net of recoveries |
| (478) |
| December 31, 2012 |
| $ 1,228 |
11
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
5.
Inventories
Inventories consist of the following (in thousands):
|
|
| December 31, |
| December 31, |
|
|
| 2012 |
| 2011 |
|
|
|
|
|
|
| Raw materials | $ 1,124 |
| $ 1,852 | |
| Work-in-process | 1,323 |
| 1,854 | |
| Finished goods | 20,207 |
| 23,010 | |
| Total inventories | $ 22,654 |
| $ 26,716 |
The allowance for slow-moving and obsolete inventory, primarily finished goods, was $1.6 million at December 31, 2012 and $2.3 million at December 31, 2011.
6.
Property, Plant and Equipment, Net
Property, plant and equipment, net consist of the following (in thousands):
|
|
|
| Weighted |
| December 31, |
| December 31, | |
|
|
|
| Average Life |
| 2012 |
| 2011 | |
|
|
|
|
|
|
|
|
| |
| Land and improvements |
| 10 years |
| $ 3,140 |
| $ 3,140 | ||
| Buildings and improvements |
| 10-33 years |
| 6,573 |
| 6,538 | ||
| Furniture, fixtures and equipment |
| 3-15 years |
| 30,849 |
| 30,121 | ||
| Computer software |
| 3-5 years |
| 21,212 |
| 15,277 | ||
| Leasehold improvements |
| 3-16 years |
| 6,134 |
| 5,929 | ||
| Construction in progress |
|
|
| 2,764 |
| 2,322 | ||
|
| Total |
|
|
| 70,672 |
| 63,327 | |
| Less: Accumulated depreciation |
|
|
| (20,949) |
| (9,762) | ||
| Property, plant and equipment, net |
|
| $ 49,723 |
| $ 53,565 |
Depreciation expense included in cost of goods sold and selling, general and administrative expenses was $11.4 million for the year ended December 31, 2012 and $9.8 million for the period ended December 31, 2011.
12
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
7.
Intangible Assets, Net
Intangible assets, net, consist of the following (in thousands):
|
|
|
| Customer |
| Trademarks & |
|
|
|
|
|
| Relationships |
| Trade Names |
| Total |
|
|
|
|
|
|
|
|
|
| March 2, 2011 |
|
| $ 71,596 |
| $ 57,500 |
| $ 129,096 |
| Amortization |
| (9,944) |
| (4,792) |
| (14,736) | |
| December 31, 2011 |
|
| $ 61,652 |
| $ 52,708 |
| $ 114,360 |
| Amortization |
| (11,933) |
| (5,750) |
| (17,683) | |
| December 31, 2012 |
|
| $ 49,719 |
| $ 46,958 |
| $ 96,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Useful Life and Weighted Average Life |
| 6 years |
| 10 years |
|
| |
| Expected Amortization |
|
|
|
|
|
| |
| 2013 |
|
| 11,933 |
| 5,750 |
| 17,683 |
| 2014 |
|
| 11,933 |
| 5,750 |
| 17,683 |
| 2015 |
|
| 11,933 |
| 5,750 |
| 17,683 |
| 2016 |
|
| 11,933 |
| 5,750 |
| 17,683 |
| 2017 |
|
| 1,987 |
| 5,750 |
| 7,737 |
| Thereafter |
| - |
| 18,208 |
| 18,208 | |
| Total |
|
| $ 49,719 |
| $ 46,958 |
| $ 96,677 |
8.
Goodwill
The change in the carrying amount of goodwill is as follows (in thousands):
| March 2, 2011 |
| $ 54,851 | |
|
|
|
|
|
| Impairment |
| (20,924) | |
|
|
|
|
|
| December 31, 2011 and 2012 |
| $ 33,927 |
The Company has performed its required annual impairment testing of its recorded goodwill for its single reporting unit using certain financial analysis methodologies including comparable companies analysis and the discounted cash flow analysis. The 2012 test of goodwill resulted in no impairment charge. The 2011 test of goodwill impairment indicated that the fair value was less than the carrying value of the goodwill for the reporting unit. The impairment was due to a decrease in projected cash flows of the reporting unit as compared to those used to determine the range of estimated enterprise values established by the bankruptcy court and the resulting estimated enterprise value used for fresh start accounting (Note 1). Accordingly, the Company recorded an impairment charge of approximately $20.9 million as of December 31, 2011.
13
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
9.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
|
| December 31, |
| December 31, | |
|
|
|
| 2012 |
| 2011 | |
|
|
|
|
|
|
| |
| Compensation and employee related benefits |
| $ 9,825 |
| $ 10,003 | ||
| Customer rebates |
| 4,901 |
| 4,261 | ||
| Business taxes |
| 1,986 |
| 4,177 | ||
| Accrued interest |
| 4,429 |
| 3,734 | ||
| Other accrued liabilities |
| 5,130 |
| 6,113 | ||
|
| Accrued liabilities |
| $ 26,271 |
| $ 28,288 |
10.
Long-Term Debt
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
| December 31, |
| December 31, |
|
|
|
|
|
|
|
| 2012 |
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
| First Lien Term Loan | $ 133,216 |
| $ 138,862 | ||||||
| Second Lien Term Loan | 186,508 |
| 155,199 | ||||||
| Other |
|
|
|
| 251 |
| 453 | ||
|
|
|
|
|
|
|
| 319,975 |
| 294,514 |
| Less, unamortized fair value adjustment | (4,583) |
| (6,465) | ||||||
| Less, current maturities of long-term debt | (8,236) |
| (8,319) | ||||||
|
|
|
|
| Long-term debt, net | $ 307,156 |
| $ 279,730 |
First Lien Term Loan
In connection with the acquisition of certain assets and assumption of certain liabilities of WF Holdings, the Companys subsidiary, WorkflowOne LLC entered into a $141.5 million term loan (First Lien Term Loan) with lenders to finance the acquisition. The First Lien Term Loan matures on March 2, 2015. Interest rates are based on either a) the greater of 3% or LIBOR (0.21% at December 31, 2012), plus 7% or b) at a defined base rate plus 6%, at the borrowers election. The First Lien Term Loan is guaranteed by the Company and WorkflowOne of Puerto Rico Inc., and collateralized by a first priority lien on substantially all of the Companys and its subsidiaries assets.
Second Lien Term Loan
In connection with the acquisition of certain assets and assumption of certain liabilities of WF Holdings, the Company subsidiary, WorkflowOne LLC entered into a $140 million second lien term loan (Second Lien Term Loan) with lenders to finance the acquisition. The Second Lien Term Loan matures on September 2, 2015.
14
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
Interest rates are based on the greater of 3% or LIBOR (0.21% at December 31, 2012), plus 1.0%, plus a defined base margin of 11.0%, plus a supplemental margin (2.0% at December 31, 2012). Subject to certain financial conditions, 5% of the paid-in-kind interest could convert to cash interest. As of December 31, 2012, all interest on the Second Lien Term Loan is being accrued as paid-in-kind. The Second Lien Term Loan is guaranteed by the Company and WorkflowOne of Puerto Rico Inc., and collateralized by a second priority lien on substantially all of the Companys and its subsidiaries assets.
The First and Second Lien Term Loans contain various operating and financial covenants as defined in the agreements. These covenants include, but are not limited to, the requirement that the Company meet certain leverage and interest coverage ratios. In addition, the Companys ability to pay cash dividends and repurchase shares is limited under the First and Second Lien Term Loans.
The Company was in compliance with all of its financial covenants at December 31, 2012.
On October 5, 2011, the Company reached an agreement with its lenders to amend its financial covenants which require the Company to meet certain leverage and interest coverage ratios under the First and Second Lien Term Loans. Effective on that date the interest rate on the First Lien Term Loan was increased to include 1% of paid-in-kind interest. The interest rate on the Second Lien Term Loan increased by 1%. On April 20, 2012, the Company reached an agreement with its lenders to amend its financial covenants which require the Company to meet certain leverage and interest coverage ratios under the First and Second Lien Term Loans. Effective on that date the interest rate on the First Lien Term Loan was increased to include an additional 1% of paid-in-kind interest. Paid-in-kind interest expense on the First Lien Term Loan totaled $2.4 million for the year ended December 31, 2012 and $0.3 million for the period ended December 31, 2011. Paid-in-kind interest expense on the Second Lien Term Loan totaled $31.2 million for the year ended December 31, 2012 and $18.1 million for the period ended December 31, 2011.
On April 30, 2013, the Company reached an agreement with its lenders to amend its future financial covenants which require the Company to meet certain leverage and interest coverage ratios under the First and Second Lien Term Loans.
Other
Other debt includes $0.1 million and $0.3 million related to capital leases at December 31, 2012 and 2011, respectively, and $0.1 million due to the Ohio Department of Development at December 31, 2012 and 2011.
Deferred Loan Costs
The Company capitalized $1.5 million and $1.4 million of debt issuance costs during the year ended December 31, 2012 and the period from March 2, 2011 to December 31, 2011, respectively, related to amendments of the Companys debt facilities. Unamortized deferred loan costs were $2.1 million and $1.3 million at December 31, 2012 and 2011, respectively, and were included in other assets in the accompanying consolidated balance sheet.
15
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
The annual maturities on long-term debt are as follows (in thousands):
| December 31, |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| 2013 |
|
|
|
| $ 8,236 | ||
| 2014 |
|
|
|
| 8,014 | ||
| 2015 |
|
|
|
| 303,725 | ||
|
|
|
|
| Total maturities of long-term debt | $ 319,975 |
11.
Income Taxes
As a limited liability company, the Company is not a taxpaying entity for federal or state income tax purposes. Accordingly, the Companys taxable income or loss is allocated to its members in accordance with their respective percentage ownership. Therefore, no provision or liability for income taxes has been included in the accompanying financial statements.
12.
Members Equity
At December 31, 2012, a total of 110,000 units were held by members of the Company as follows:
|
|
|
|
| Class A Common Units | 41,500 | |
| Class B Common Units | 58,500 | |
| Preferred Units | 10,000 | |
|
| Total Members' Equity | 110,000 |
The Class A Common unit holders received 41,500 Class A Common units which have certain voting and preemptive rights. The Class B unit holders received 58,500 Class B Common units which contain certain voting and preemptive rights. The preferred unit holders received 10,000 preferred units which contain certain voting and preemptive rights and carry a preferred return, as defined, of 15.0% per annum compounded quarterly. At December 31, 2012 the preferred units have a liquidating preference of approximately $39.3 million. All units were issued to the unit holders as a part of the capitalization of the Company in connection with the acquisition of assets from WF Holdings under WF Holdings Chapter 11 Plan of Reorganization (Note 1).
16
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
13.
Lease Commitments
The Company leases various types of warehouse and office facilities, equipment, furniture and fixtures under non-cancelable lease agreements that expire through 2020. Future minimum lease payments under operating leases are as follows (in thousands):
| Fiscal year |
|
|
|
|
|
|
| 2013 |
| $ 16,136 |
| 2014 |
| 13,406 |
| 2015 |
| 10,067 |
| 2016 |
| 4,442 |
| 2017 |
| 1,602 |
| Thereafter |
| 3,317 |
|
| Total minimum lease payments | $ 48,970 |
The Company recognizes rent expense on leases containing scheduled rent increases and rent holidays by recognizing the total lease payments on a straight-line basis over the term of the lease. The Company has recorded accrued liabilities associated with straight-line rent of $2.5 million and $3.1 million at December 31, 2012 and 2011, respectively. Rent expense was $17.9 million for the year ended December 31, 2012 and $17.6 million for the period from March 2, 2011 to December 31, 2011. Future rental commitments for leases have not been reduced by minimum non-cancelable sublease rentals aggregating approximately $2.4 million. The company remains secondarily liable under these leases in the event that the sub-lessee defaults under the sublease terms. The Company does not believe that material payments will be required as a result of the secondary liability provisions of the primary lease agreements.
14.
Commitments and Contingencies
The Company is, from time to time, a party to litigation arising in the normal course of its business. Management does not believe that the outcome of this litigation will have a material adverse effect on the financial position, results of operations or cash flows of the Company.
In the normal course of business, the Company enters into contracts in which it makes representations and warranties regarding the performance of its services and that its services will not infringe on third party intellectual rights. There have been no significant losses related to such representations and warranties and the Company does not expect to incur any significant losses in the future.
15.
Related Party Transactions
Management Fees
The Company has management agreements with two entities that also manage members of the Company. The combined annual management fee is $1.1 million plus reasonable expenses. The entities provide the Company with management, consulting and financial advisory services, as well as periodic operational consultation. The management fee is paid quarterly in advance. The Company expensed management fees of $1.1 million as of December 31, 2012 and $0.9 million in the period from March 2, 2011 to December 31, 2011.
17
Workflow Holdings, LLC and Subsidiaries
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and the Period from March 2, 2011 (commencement of operations) to December 31, 2011
Debt
Approximately 68%, or $90.3 million and approximately 66%, or $91.1 million, of the outstanding balance of the Companys First Lien Term Loan at December 31, 2012 and 2011, respectively, and 100% of the outstanding balance of the Second Lien Term Loan at December 31, 2012 and 2011, was financed by funds managed by entities that also manage members of the Company. Accrued interest payable to related parties totaled $4.4 million and $3.7 million at December 31, 2012 and 2011, respectively.
16.
Subsequent Event
The Company evaluated events occurring subsequent to the date of the consolidated financial statements in determining the accounting for and disclosure of transactions and events that affect the consolidated statements. Subsequent events have been evaluated through April 30, 2013, which is the date the consolidated financial statements were available for issuance. Except for those discussed in Note 10, the Company did not identify any additional subsequent events which would require recognition or disclosure in the financial statements.
18