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 September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-12954
CADMUS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1274108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6620 West Broad Street, Suite 500, Richmond, Virginia 23230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 287-5680
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 1994
Class Outstanding at October 31, 1994
Common Stock, $.50 Par Value 6,008,297
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Index
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets-- 3
September 30, 1994 and June 30, 1994
Consolidated Statements of Income-- 4
Three Months Ended September 30, 1994 and 1993
Consolidated Statements of Cash Flows-- 5
Three Months Ended September 30, 1994 and 1993
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
September 30, June 30,
1994 1994
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,262 $ 3,855
Accounts receivable 44,039 44,747
Inventories 13,670 11,219
Deferred income taxes 1,227 1,227
Prepaid expenses and other 1,423 889
Total current assets 62,621 61,937
Property, plant and equipment (net of
accumulated depreciation of $72,002
at September 30, 1994 and $70,818 at
June 30, 1994) 75,291 77,072
Investment in unconsolidated joint venture 6,894 6,831
Other assets 6,702 6,672
Goodwill and intangibles, net 8,116 7,617
Total Assets $159,624 $160,129
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,317 2,318
Accounts payable 18,950 17,312
Accrued expenses
Compensation 6,689 10,612
Restructuring charge 1,435 1,900
Other 7,109 6,439
Income taxes 602
Total current liabilities 37,102 38,581
Long-term debt 56,103 56,122
Other long-term liabilities 7,707 7,575
Deferred income taxes 2,922 2,922
Shareholders' equity:
Common stock ($.50 par value; authorized-16,000
shares; issued and outstanding-6,003 shares) 3,000 2,992
Capital in excess of par value 11,973 11,796
Retained earnings 40,817 40,141
Total shareholders' equity 55,790 54,929
Total Liabilities and Shareholders' Equity $159,624 $160,129
See notes to consolidated financial statements.
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
1994 1993
Net sales $60,383 $49,126
Operating expenses
Cost of sales 46,631 36,717
Selling and administrative 10,997 10,028
Operating income 2,755 2,381
Interest and other (income) expenses
Interest 1,267 961
Other (income) expenses (119) 26
Income before income taxes 1,607 1,394
Income taxes 633 558
Income before cumulative effect
of changes in accounting
principles 974 836
Cumulative effect of changes in
accounting for:
Postretirement benefits (net of
income tax benefit of $355) (532)
Income taxes 933
Net income $ 974 $ 1,237
Earnings per share:
Income before cumulative effect
of changes in accounting
principles $ .16 $ .14
Cumulative effect of changes in
accounting for postretirement
benefits and income taxes .07
Net income $ .16 $ .21
Average common shares outstanding 6,190 5,976
Cash dividends per common share $ .05 $ .05
See notes to consolidated financial statements.
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
September 30,
1994 1993
Operating Activities
Net income $ 974 $ 1,237
Adjustments to reconcile net income to
net cash provided by operating activities:
Cumulative effect of changes in
accounting for:
Postretirement benefits 532
Income taxes (933)
Depreciation and amortization 3,050 2,581
Deferred income taxes 355
Equity in earnings of joint venture (180) (221)
Other, net 95 263
3,939 3,814
Changes in operating assets and liabilities,
excluding effects of acquisitions:
Accounts receivable 747 510
Inventories (2,451) (503)
Accounts payable, accrued expenses
and income taxes (1,487) (1,536)
Other, net (561) (106)
(3,752) (1,635)
Net cash used in operating activities 187 2,179
Investing Activities
Purchases of property, plant and equipment (3,719) (4,049)
Proceeds from sale of property 2,811
Cash paid for acquisitions (720)
Other (17) (252)
Net cash used in investing activities (1,645) (4,301)
Financing Activities
Net borrowings under bank lines of credit 2,530
Repayment of long-term debt (20) (15)
Proceeds from exercise of stock options 185
Dividends paid (300) (297)
Net cash provided by (used in)
financing activities (135) 2,218
Increase (decrease) in cash and cash equivalents (1,593) 96
Cash and cash equivalents at beginning
of period 3,855 2,206
Cash and cash equivalents at end of period $2,262 $2,302
See notes to consolidated financial statements.
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
1. The interim financial statements are unaudited. In the opinion of
management, they reflect all adjustments (which consist only of those
of a normal recurring nature) necessary for a fair presentation of
results for the periods indicated. The results of operations for any
interim period are not necessarily indicative of results for the full
year. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's annual
report for the year ended June 30, 1994. Certain previously reported
amounts have been reclassified to the 1995 presentations.
2. Net income per common share is computed based upon the weighted average
number of shares outstanding during the periods presented. Shares under
stock options are treated as common stock equivalents for purposes of
computing primary and fully diluted net income per share.
3. Inventories are valued at the lower of cost or market, principally using
the last-in, first-out (LIFO) method (71.8% as of September 30, 1994 and
72.6% as of June 30, 1994). The first-in, first-out (FIFO) method is
used to value the remaining inventories. The components of inventories
were as follows (in thousands):
September 30, June 30,
1994 1994
Raw materials and supplies $ 4,343 $ 3,997
Work in process:
Materials 2,833 2,219
Other manufacturing costs 4,872 3,623
Finished goods 1,622 1,380
$13,670 $11,219
4. During the first quarter of fiscal year 1995, the Company purchased the
remaining twenty percent equity interest in Tuff Stuff under a
repurchase agreement for approximately $0.6 million to bring the
Company's equity interest in Tuff Stuff to one hundred percent. The
Company purchased the initial eighty percent equity interest in April
1992 at which time the acquisition was accounted for using the purchase
method. Accordingly, the assets and liabilities were recorded at their
estimated fair value with the excess of the purchase price over the
estimated fair value of the identifiable net assets acquired recorded
as goodwill which is being amortized on the straight-line basis over
twenty years. The additional $0.6 million equity interest was recorded
first as a reduction of the existing minority interest ownership and
then as an addition to the excess of the purchase price over the
estimated fair value of the net assets acquired and will be amortized
on a straight-line basis over the remaining life of the original
goodwill (approximately seventeen years).
5. On September 29, 1994, the Company sold the land, building and building
improvements ("property") of 3 Score in Tucker, Georgia for $2.9 million
(which approximated net book value) under an agreement for the sale and
leaseback of the property. The lease is classified as an operating
lease in accordance with Statement of Financial Accounting Standards
("SFAS") No. 13, "Accounting for Leases."
The Company has lease renewal options after the initial fifteen year lease
term at projected future fair market values under the agreements. Total
future minimum lease payments over the next five years are $320,900 for
each of the next four years and $327,300 in the fifth year.
6. In the fourth quarter of fiscal 1994, the Company recorded a
restructuring charge of $1.9 million. This charge resulted from
reductions in its work force related to the decision to close its
Springfield, Virginia facility and to consolidate its composition and
pre-press facilities in Richmond and Baltimore. These actions are
expected to be completed by June 30, 1995. The Company recorded a pre-
tax charge of $1.6 million related to employee termination benefits with
the remaining charges related to equipment write-offs and miscellaneous
other direct costs associated with the discontinuation of the operations
and other exit costs. Actual expenses incurred and charged against the
reserve in the first quarter of fiscal 1995 were $0.5 million.
<PAGE>
7. The Company periodically enters into interest rate swap agreements to
moderate its exposure to interest rate changes and to lower the overall
cost of borrowing. Subsequent to September 30, 1994, the Company
entered into two interest rate swap agreements with two banks to convert
debt with an aggregate notional value of $8.7 million from floating rate
to fixed rate debt. These swaps have a term of four years. Under the
terms of this agreement, the Company makes payments at a fixed interest
rate of 8.061% and will receive payments based on six-month LIBOR in
arrears. The net interest paid or received will be included in interest
expense. These swaps are hedged against the $35.0 million fixed to
floating rate swap. (See Note 8 of the Notes to Consolidated Financial
Statements in the Annual Report).
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales in the first quarter of fiscal 1995 increased 22.9% to $60.4
million compared to $49.1 million for the same period last year. Excluding
the effect of the acquisition of Cadmus Journal Services sales rose 1.4%.
Operating income rose 15.7% to $2.8 million in 1995 from $2.4 million in
1994. Net income was $1.0 million, or $.16 per share, in 1995, which
represents an increase of 16.5% over income before cumulative effect of
changes in accounting principles of $0.8 million, or $.14 per share, in
fiscal 1994. Net income was $1.2 million, or $.21 per share, in fiscal 1994,
which included a net after-tax credit of $0.4 million, or $.07 per share,
related to the adoption of two new accounting standards.
The following table presents the major components from the Consolidated
Statements of Income as a percent of sales for the three months ended
September 30, 1994 and 1993:
Three Months Ended
September 30,
1994 1993
Net sales 100.0% 100.0%
Cost of sales 77.2 74.7
Gross profit 22.8 25.3
Selling and administrative expenses 18.2 20.4
Operating income 4.6 4.9
Interest expense 2.1 2.0
Other (income) expenses (0.2) 0.1
Income before income taxes 2.7 2.8
Income taxes 1.1 1.1
Income before cumulative effect of
changes in accounting principles 1.6 1.7
Cumulative effect of changes in
accounting principles 0.8
Net income 1.6% 2.5%
Sales
The Company groups sales into three business groups: printing, marketing and
publishing. The table below displays net sales for each of these groups
expressed as a percent of total sales:
Three Months Ended
September 30,
1994 1993
Printing 74.4% 71.4%
Marketing 17.4 19.5
Publishing 8.2 9.1
100.0% 100.0%
Sales increased in each business group for the first quarter of fiscal 1995
compared to the same period of fiscal 1994 as follows: printing 28.2%
increase; marketing 9.9% increase; and publishing 10.0% increase.
Printing Sales
The growth in printing sales was attributable to increased research journals
sales (122.3% increase), continued gains in sales of specialty packaging
(19.0% increase) and strong promotional materials sales (8.7% increase).
Adjusted for the acquisition of Cadmus Journal Services, research journal
sales increased by 12.8% due to the integration of the research journal sales
forces into one coalition under the auspices of Cadmus Journal Services.
Specialty packaging sales continued to grow at a steady rate driven equally
by increased volume and improved pricing. After an overall down year in
fiscal year 1994, sales of promotional materials posted a notable increase in
the first quarter of 1995 due entirely to expanded volume.
<PAGE>
RESULTS OF OPERATIONS (continued)
These increases in printing sales were partially offset by lower specialty
publications and financial printing sales. The continued decline in sales of
specialty publications was due to the loss of several large customers in
fiscal 1994 which have taken longer than anticipated to replace. However, a
new state-of-the-art color pre-press system has been put in place which
increases our ability to attract customers through expanded production
capabilities. This combined with the fact that a number of new publications
have been introduced should result in improved revenues for the second half
of fiscal 1995. Declines persist in the financial printing product lines as
interest rate increases have slowed down both debt and equity issuances.
Adjusted for the acquisition of Cadmus Journal Services, overall printing
sales were flat for the first quarter.
Marketing Sales
The increase in marketing revenues was driven primarily by 16.0% growth in
point-of-sale revenues and a 4.0% increase in direct marketing sales. Point-
of-sale revenue increases are a result of our new product development and the
installation of ultraviolet drying equipment which enables us to achieve high
quality printing on plastics. In addition, the success of both the "Kids
Link" programs and Cadmus Sports Marketing efforts produced combined sales of
$0.4 million.
These increases in marketing revenues were partially offset by a 6.7% decline
in catalog production services sales. Although catalog sales are down
slightly, overall activity has improved and profitability in this product
line is up due to a shift in the sales mix from high fashion to hard-line
catalogs. Prior year catalogs sales are somewhat inflated by high fashion
model expenses.
The continuation of the trends mentioned above through aggressive sales
efforts, combined with the acquisition of Cadmus Interactive during the first
quarter, should result in sustained growth in marketing sales.
Publishing Sales
Publishing sales increased due to both new product circulation and to market
share expansion. New product circulation involved the introduction of
Collect!, a magazine serving the non-sports collectibles market, and Mid-
Atlantic Soccer, a regional magazine focused on promoting youth soccer, in
fiscal 1994. Market share expansion was achieved through extensive
telemarketing efforts at Tuff Stuff despite the overall decline in interest
by sports cards collectors because of the baseball strike. The trend of
growth in publishing sales is expected to continue.
Costs and Other Expenses
Cost of sales for the first quarter of fiscal 1995 was 77.2% of sales
compared to 74.7% for the same period last year. However, selling and
administrative expenses decreased for the first quarter of fiscal 1995 to
18.2% of sales compared to 20.4% of sales in fiscal 1994. The increase in
the cost of sales and the decrease in the selling and administrative expenses
as a percent of sales are both a result of a change in the sales mix due to
the addition of Cadmus Journal Services, which has a relatively higher cost
of sales and a lower general and administrative expense ratio. Excluding the
effects of Cadmus Journal Services, cost of sales were 74.8% of sales and
general and administrative expenses were 19.9% of sales for the first quarter
of fiscal 1995.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities declined from $2.2 million for
fiscal year 1994 to $0.1 million for fiscal year 1995 primarily a result of
$2.0 million in increased inventory levels. This increase in inventory
levels is expected to be temporary as it relates to both increased levels
resulting from pricing pressures which tightened the paper market and forced
the Company to carry safety stock, and work in process which typically turns
around within a quarter. In addition, prepaids were up $0.4 million over
June 30, 1994 as a result of payments associated with the contract with
National Football League Properties, Inc. ("NFLP"). These uses of cash were
slightly offset by a $0.3 million increase in the reduction in receivables
over the prior fiscal quarter primarily due to seasonal fluctuations in
sales.
Capital investment in property, plant and equipment totaled $3.7 million
during the first three months of fiscal 1995. Significant projects included
in this amount were the completion of the installation of text and graphics
composition software to integrate research journals in Richmond and
Baltimore/Easton for approximately $0.5 million, purchase of approximately
$0.5 million in new Scitex color pre-press equipment, the roof replacement at
Byrd for approximately $0.5 million, and the $0.9 million for the build out
of leasehold improvements at Airport Square for CJS. For fiscal 1995, the
Company projects that capital spending will total approximately $14.3
million.
Total debt at September 30, 1994 was $58.4 million, representing no change
from June 30, 1994. The Company's debt-to-capital ratio at September 30,
1994 was 51.2% compared to 51.5% at June 30, 1994. There were no outstanding
borrowings under the Company's $25 million revolving credit lines at
September 30, 1994.
Subsequent to September 30, 1994, the Company entered into two interest rate
swap agreements with two banks to convert debt with an aggregate notional
value of $8.7 million from floating rate to fixed rate debt. These swaps
agreements have a term of four years and were initiated to moderate the
Company's exposure to interest rate changes and to lower the overall cost of
borrowing. Under the terms of this agreement, the Company makes payments at
a fixed interest rate of 8.061% and will receive payments based on six-month
LIBOR in arrears. The net interest paid or received will be included in
interest expense. These swaps are hedged against the $35.0 million fixed to
floating rate swap. See Note 7 of the Notes to Consolidated Financial
Statements for additional information on these transactions.
RESTRUCTURING CHARGE
In the fourth quarter of fiscal 1994, the Company announced a plan to
restructure its research journal and specialty magazine divisions, resulting
in a pre-tax charge of $1.9 million. This charge resulted from reductions in
its work force related to the decision to close its Springfield, Virginia
facility, and to consolidate its composition and pre-press facilities in
Richmond and Baltimore. These actions are expected to be completed by June
30, 1995. The Company expects to achieve pre-tax cost savings in the second
half of fiscal 1995 of approximately $1.5 million, with a full-year impact of
annual cost savings increasing to $3.2 million in fiscal 1996. Following is
a schedule of the costs included in and the amounts charged against the
restructuring reserve to date:
Original First Quarter
Description Charge Amounts
Employee separation $ 1,630 $ 354
Equipment write-downs 75 21
Other direct costs 195 90
Total $ 1,900 $ 465
The employee separation costs relate to termination benefits and anticipated
layoffs of approximately 96 employees: 20% management and 80% production.
As of September 30, 1994, 48 employees have left the Company as a result of
this plan. The remaining 48 employees will leave the Company by the end of
January 1995.
Cash expenditures under this plan are expected to be $1.0 million in the
second quarter with the remaining expenditures to occur in the second half of
fiscal 1995.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: Description
Exhibit 11 Statement Regarding Computation of
Net Income per Share
b. Reports on Form 8-K:
On August 23, 1994, Cadmus Communications Corporation filed a Form 8-K
to report a change in certifying accountants from Coopers & Lybrand
L.L.P. to Arthur Andersen LLP.
On September 20, 1994, Cadmus Communications Corporation filed a Form
8-K/A, Amendment No. 1 to Form 8-K dated August 23, 1994 to report the
dismissal of Coopers & Lybrand L.L.P. as the Company's certifying
accountant as a result of the appointment of Arthur Andersen LLP.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CADMUS COMMUNICATIONS CORPORATION
Date: November 9, 1994
/s/ C. Stephenson Gillispie, Jr.
C. Stephenson Gillispie, Jr.
President and Chief Executive Officer
Date: November 9, 1994
/s/ Michael Dinkins
Michael Dinkins
Vice President and Chief Financial Officer
<PAGE>
Securities Exchange Commission
450 5th Street, N.W.
Washington, D. C. 20549
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
Three Months Ended
September 30,
1994 1993
Net income per share
was computed as follows:
Primary:
1) Net income $ 974,072 $ 1,237,440
2) Weighted average common
shares outstanding 5,991,803 5,946,282
3) Incremental shares under
stock options computed under
the treasury stock method
using the average market
price of issuer's common
stock during the periods 198,451 29,688
4) Weighted average common and
common equivalent shares
outstanding 6,190,254 5,975,970
5) Net income per share (item 1
divided by item 4) $ .16 $ .21
Fully diluted:
1) Net income $ 974,072 $ 1,237,440
2) Weighted average common
shares outstanding 5,991,803 5,946,282
3) Incremental shares under
stock options computed under
the treasury stock method
using the market price of
issuer's common stock at the
end of the periods if higher
than the average market price 212,629 58,090
4) Weighted average common and
common equivalent shares
outstanding 6,204,432 6,004,372
5) Net income per share (item 1
divided by item 4) $ .16 $ .21
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<PERIOD-END> SEP-30-1994
<CASH> 2,262
<SECURITIES> 0
<RECEIVABLES> 45,220
<ALLOWANCES> 1,181
<INVENTORY> 13,670
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<PP&E> 147,293
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<BONDS> 56,103
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0
0
<OTHER-SE> 52,790
<TOTAL-LIABILITY-AND-EQUITY> 159,624
<SALES> 60,383
<TOTAL-REVENUES> 60,383
<CGS> 46,631
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