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 December 31, 1993
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 January 31, 1994
Class Outstanding at January 31, 1994
Common Stock, $.50 Par Value 5,967,326
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Index
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets-- 3
December 31, 1993 and June 30, 1993
Consolidated Statements of Income-- 4
Three and Six Month Periods Ended
December 31, 1993 and 1992
Consolidated Statements of Cash Flows-- 5
Six Months Ended December 31, 1993 and 1992
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
<TABLE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, June 30,
1993 1993
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,060 $ 2,206
Accounts receivable 43,849 35,768
Inventories 13,276 10,263
Deferred income taxes 1,800
Prepaid expenses and other 884 529
Total current assets 64,869 48,766
Other assets 6,594 5,224
Investment in joint venture 6,659 6,499
Property, plant and equipment (net of
accumulated depreciation of $67,003
at December 31, 1993 and $63,114 at
June 30, 1993) 75,389 65,983
Goodwill and intangibles 7,735 7,717
Total Assets $161,246 $134,189
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 4,000
Current maturities of long-term debt $ 4,065 3,234
Accounts payable 16,393 11,898
Accrued expenses
Compensation 7,759 8,839
Other 5,729 4,256
Total current liabilities 33,946 32,227
Long-term debt 64,519 43,249
Other long-term liabilities 6,768 5,376
Deferred income taxes 3,095 2,644
Shareholders' equity:
Common stock 2,981 2,974
Capital in excess of par value 11,667 11,594
Retained earnings 38,270 36,125
Total shareholders' equity 52,918 50,693
Total Liabilities and Shareholders' Equity $161,246 $134,189
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Net sales $61,448 $51,488 $110,574 $96,244
Operating expenses
Cost of sales 45,239 37,161 81,209 70,333
Selling and administrative 12,699 11,424 23,570 20,962
Operating income 3,510 2,903 5,795 4,949
Financial and other expenses
Financial 866 677 1,731 1,364
Other expenses 117 176 143 354
Income before income taxes 2,527 2,050 3,921 3,231
Income taxes 1,017 788 1,575 1,261
Income before cumulative effect
of changes in accounting
principles 1,510 1,262 2,346 1,970
Cumulative effect of changes in
accounting for:
Postretirement benefits (net of
income tax benefit of $355) (532)
Income taxes 933
Net income $ 1,510 $ 1,262 $ 2,747 $ 1,970
Earnings per share:
Income before cumulative effect
of changes in accounting
principles $ .25 $ .21 $ .39 $ .33
Cumulative effect of changes in
accounting for postretirement
benefits and income taxes .07
Net income $ .25 $ .21 $ .46 $ .33
Average number of common shares
outstanding 6,058 5,958 6,011 5,972
Cash dividends per common share $ .05 $ .05 $ .10 $ .10
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
December 31,
1993 1992
<S> <C> <C>
Operations
Net income $ 2,747 $ 1,970
Items not affecting cash
Cumulative effect of changes in
accounting for:
Postretirement benefits 532
Income taxes (933)
Depreciation and amortization 5,510 4,853
Deferred income taxes (230)
Equity in earnings of joint venture (315)
Other 569 326
8,110 6,919
Working capital sources (requirements)
(excluding debt and effects of acquisition)
Accounts receivable (1,617) (1,274)
Inventories 723 (78)
Accounts payable, accrued
expenses and income taxes 2,393 (2,727)
Other (79) 313
1,420 (3,766)
Net cash flow from operations 9,530 3,153
Capital Investment
Cash paid for business acquired (15,604)
Cash paid to escrow for business acquired (1,000)
Property, plant and equipment (7,031) (3,737)
Other (401) (1,251)
(24,036) (4,988)
Financing
Net borrowings (repayments) under bank
lines of credit (17,500) 3,000
New long-term debt 40,000
Repayment of long-term debt (4,399) (1,182)
Repurchase of common stock (209)
Shareholders' investment 80
Other (225) 30
Dividends (596) (598)
17,360 1,041
Increase (decrease) in cash and cash equivalents 2,854 (794)
Cash and cash equivalents at beginning of period 2,206 2,022
Cash and cash equivalents at end of period $ 5,060 $ 1,228
<FN>
See notes to consolidated financial statements.
</TABLE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
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, 1993.
2. Inventories are valued at the lower of cost or market. Cost is determined
principally by the last-in, first-out (LIFO) method: 75% as of December 31,
1993 and 69% as of June 30, 1993. The components of inventories were as
follows (in thousands):
December 31, June 30,
1993 1993
Raw materials and supplies $ 4,735 $ 3,907
Work in process:
Materials 2,147 1,886
Other manufacturing costs 4,506 2,509
Finished goods 1,888 1,961
$13,276 $10,263
3. 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.
4. Financial expense consists of the following (in thousands):
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Interest expense $1,022 $ 940 $1,984 $1,857
Interest capitalized -- (102) (1) (201)
Discounts on accounts receivable,
net of service charges 92 70 162 136
Discounts taken on materials
purchased (248) (231) (414) (428)
$ 866 $ 677 $1,731 $1,364
</TABLE>
Interest paid, net of amounts capitalized, totaled $1,980,000 and $1,569,000
for the quarters ended, and $2,510,000 and $1,890,000 for the six-month periods
ended December 31, 1993 and 1992, respectively.
5. On November 1, 1993, the Company acquired the net assets of Waverly Press
from Waverly, Inc. for up to approximately $20 million. Waverly Press, the
printing division of Waverly, Inc., has sales of approximately $50 million; is
well-known as a premier printer of scientific, scholarly, and medical journals;
and now operates under the name Cadmus Journal Services. The purchase price
consisted of cash payments of $14.5 million at closing; additional
consideration of $5.5 million which is contingent upon confirmation of certain
representations made by Waverly, Inc. regarding Waverly Press and certain
contingencies relating to the 1994 operations; and other direct costs of the
acquisition. The acquisition has been accounted for under the purchase method
and, accordingly, the costs of the acquisition were allocated to the assets
acquired and liabilities assumed based upon their respective fair values.
The operating results of Cadmus Journal Services have been included in the
consolidated operating results since the date of acquisition.
The funds used to acquire Cadmus Journal Services were provided from the
placement of senior notes with two insurance companies (see Note 6).
Of the $5.5 million contingent payments, $1 million was placed in escrow until
February 15, 1995 in accordance with the Purchase Agreement and is included in
the Consolidated Balance Sheet as Other Assets. As contingent payments are
made, the costs allocated to the noncurrent assets will be increased
proportionately.
The following unaudited pro forma consolidated financial information
combines the results of Cadmus Journal Services as if they had been acquired
as of the beginning of the periods presented, after including the impact of
the following adjustments: depreciation of the assets acquired based on their
fair values, elimination of Waverly, Inc. corporate overhead allocation,
savings due to consolidation and elimination of duplicative services, interest
expense on debt used to fund the purchase, and the related income tax effect
of these adjustments.
Six Months Ended
December 31,
1993 1992
Net sales $127,625 $121,027
Income before cumulative effect 3,544 2,993
of changes in accounting principles
Net income 3,945 2,993
Earnings per share:
Income before cumulative effect
of changes in accounting principles .59 .50
Net income .65 .50
The pro forma financial information is not necessarily indicative of what
actually would have occurred if the acquisition had been in effect for the
entire period presented, nor is it intended to be indicative of future
operating results.
6. The Company completed placement of $40 million in senior notes with two
insurance companies on December 23, 1993. The placement has a fixed interest
rate of 6.74% with an average life of 8.1 years and is due in 2003. The
proceeds of this placement were used to fund the acquisition of Waverly Press
and to refinance approximately $20 million of revolving bank credit.
The Company also entered into an interest rate swap agreement to convert $35
million of the senior notes to floating rate debt. The swap has a term of
three years and effectively converts $35 million of the private placement
debt to variable rate debt. Under the terms of this agreement, the Company
makes payments at variable rates which are based on six-month LIBOR and
receives payments at a fixed interest rate. The net interest paid or received
is included in interest expense. The Company is exposed to credit loss in the
event of nonperformance by the other parties to the interest swap agreement.
However, the Company does not anticipate nonperformance by the counterparties.
The variable rate at December 31, 1993 was 3.50%.
Subsequent to December 31, 1993, the Company entered into agreements for a
$25 million revolving credit facility with its four major banks, replacing the
former lines of credit. These new unsecured, committed lines of credit have a
three-year term expiring in February 1997, at which time any loans outstanding
under the facility convert to term loans with a two-year maturity. The Company
has the following interest rate options: (i) adjusted CD rate or (ii) adjusted
LIBOR. These agreements also require commitment fees of 1/4 to 1/2 percent per
annum on any unused portion of the lines of credit.
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash provided from operations before working capital requirements rose 17.2% in
the
first six months of fiscal 1994 to $8.1 million compared to $6.9 million in the
same
period of fiscal 1993. The primary factors were a 19.1% increase in income
before
cumulative effect of accounting changes and higher depreciation expenses. Net
cash
flow from operations for the first six months of fiscal 1994 totaled $9.5
million, up
significantly from the $3.2 million recorded in the same period of 1993. Net
cash flow
before financing activities and before acquisitions totaled $2.1 million in
fiscal 1994
compared to a cash deficit of $1.8 million in 1993.
Working capital, excluding the effects of cash, debt and the acquisition of the
net
assets of Waverly Press (now Cadmus Journal Services), declined $1.4 million for
the
first six months of fiscal 1994. The primary factors for the decline were an
increase
in accounts payable and accrued expenses and lower inventory levels, partially
offset
by an increase in accounts receivable. The inventory reduction was primarily
attributable to inventory management initiatives which resulted in reduced paper
inventories.
Capital investment in property, plant and equipment totaled $7.0 million during
the
first six months of fiscal 1994. Significant projects included in this amount
were the
purchase of new composition software to integrate text and graphics in the
journal
division and rebuilding of a web press at Byrd Press. Also, Washburn Graphics
purchased a new six-unit sheetfed press and 3 Score purchased a digital camera.
For
fiscal 1994, the Company projects that capital spending will total approximately
$13.0
million. This amount includes capital investment requirements of the recently
acquired
Cadmus Journal Services. In addition, the Company entered into a long-term
operating
lease during the second quarter for a new six-unit sheetfed press for
Expert/Brown.
Total debt at December 31, 1993 was $68.6 million, representing an increase of
$18.1
million from the $50.5 million at June 30, 1993. The Company's debt-to-capital
ratio
at December 31, 1993 was 56.4% compared to 49.9% at June 30, 1993. This
increase was
due primarily to debt incurred to purchase the net assets of Waverly Press. On
December 23, 1993, the Company placed $40 million of senior notes with two
insurance
companies. The proceeds from these notes were used to repay short-term bridge
loans
incurred to finance the asset purchase of Cadmus Journal Services, short-term
revolving
bank lines of credit, and a bank term loan. These notes have an average life of
8.1
years with a final maturity of 10 years and carry a fixed interest rate of
6.74%. The
Company also entered into agreements for a $25 million revolving credit facility
and
into an interest rate swap agreement to effectively convert $35 million of the
senior
notes to floating rate debt. See Note 6 of the Notes to Consolidated Financial
Statements for additional information on these transactions.
Results of Operations
Net sales in the second quarter of fiscal 1994 increased 19.3% to $61,448,000
compared
to $51,488,000 for the same period last year. Excluding the effect of
acquisitions and
the merger of Vaughan Printers, sales rose 3%. Operating income rose 20.9% to
$3,510,000 in 1994 from $2,903,000 in 1993. Net income increased to $1,510,000,
or
$.25 per share in 1994, up 19.7% from the $1,262,000, or $.21 per share in 1993.
For the six-month period ended December 31, 1993, net sales were up by 14.9% to
$110,574,000 compared to $96,244,000 for fiscal 1993. Operating income for the
six
months was up by 17.1% to $5.795,000 from $4,949.000 in the prior year. Income
before
changes in accounting principles for the same period was $2,346,000, or $.39 per
share,
an increase of 19.1% from the $1,970,000, or $.33 per share, recorded in fiscal
1993.
Net income increased to $2,749,000, or $.46 per share, in 1994, up from the
$1,970,000,
or $.33 per share, in 1993.
The following table presents the major components from the Consolidated
Statements of
Income as a percent of sales for the three and six-month periods ended December
31,
1993 and 1992:
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.6 72.2 73.5 73.1
Gross profit 26.4 27.8 26.5 26.9
Selling and administrative 20.7 22.2 21.3 21.8
Operating income 5.7 5.6 5.2 5.1
Financial expense 1.4 1.3 1.6 1.4
Other expenses 0.2 0.3 0.1 0.4
Income before income taxes 4.1 4.0 3.5 3.3
Income taxes 1.6 1.5 1.4 1.3
Income before cumulative
effect of changes in
accounting principles 2.5 2.5 2.1 2.0
Cumulative effect of changes
in accounting principles .4
Net income 2.5% 2.5% 2.5% 2.0%
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 sales:
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Printing 71.8% 74.7% 69.5% 72.9%
Marketing 20.9 21.9 22.2 23.1
Publishing 7.3 3.4 8.3 3.9
100.0% 100.0% 100.0% 100.0%
</TABLE>
Sales increased in each business group for both the three and six-month periods,
respectively, of fiscal 1994 compared to the same period of fiscal 1993 as
follows:
printing (12.4% and 8.0% increases); marketing (11.4% and 9.0% increases); and
publishing (151.0% and 141% increases).
Results of Operations (continued)
The increase in printing sales for both the three and six-month periods of
fiscal 1994
was attributable to increased research journals sales (due primarily to the
acquisition
of Cadmus Journal Services), continued growth in sales of specialty packaging
and
strong annual report sales. These increases were partially offset by declines
in
promotional and financial printing sales. Although sales of specialty magazines
were
down for the second quarter, they posted a sizeable increase for the six-month
period.
Adjusted for the acquisition of Cadmus Journal Services and the merger of
Vaughan,
printing sales declined 3% for the second quarter and increased 2% for the six-
month
period from prior year sales.
The increase in marketing revenues was driven by substantial growth in direct
marketing
sales and continued growth in point-of-sale revenues. In addition, for the
second
quarter, catalog production services sales increased for the first quarter since
the
loss of a major account in January of fiscal 1993; however, they still remain
down
slightly for the six-month period.
The sizeable increase in publishing sales is the result of the inclusion and
growth of
Marblehead Communications (acquired on December 31, 1992), coupled with
continued
growth at Tuff Stuff.
Cost of sales for the second quarter of fiscal 1994 was 73.6% and for the six-
month
period was 73.5% of sales compared to 72.2% and 73.1%, respectively, for the
same
periods last year. These increases are primarily attributable to a change in
the sales
mix due to the addition of Cadmus Journal Services, which has a relatively
higher cost
of sales, and due to a decrease in financial printing sales, which produce
higher
margins. However, selling and administrative expenses decreased to 20.7% of
sales
compared to 22.2% of sales in fiscal 1993 and decreased to 21.3% of sales for
the six-
month period compared to 21.8% of sales in fiscal 1993. These percentage
decreases
were primarily due to the inclusion of Cadmus Journal Services which has a lower
general and administrative expense ratio and to the inclusion in fiscal 1993 of
marketing costs related to Sidelines.
Financial expense increased 28% and 27% for the three and six-month periods
ended
December 31, 1993, respectively, due primarily to higher interest expense and
lower
capitalized interest. The higher interest expense was the result of increased
debt
levels, which were partially offset by lower average interest rates.
The Company's tax rate increased to 40.2% for both the three and six-month
periods from
38.4% and 39%, respectively, compared to the same periods last year. These
increases
were due to a combination of a higher effective state tax rate and increased
permanent
differences (primarily for goodwill amortization, and effects of the Omnibus
Budget
Reconciliation Act of 1993).
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) At the Annual Meeting of Shareholders of the Company held on November
10, 1993, 4,931,620 shares of the Company's outstanding common stock were
present in person or by proxy and entitled to vote.
(b) At the Annual Meeting, the following nominees, all of whom currently
serve as directors, were elected as Class I directors to serve until the 1996
Annual Meeting:
Robert I. Dalton, Jr.
Lee P. Dudley
Frank G. Louthan, Jr.
Wallace Stettinius
Class II directors who will continue to serve until the 1994 Annual
Meeting are:
C. Stephenson Gillispie, Jr.
John D. Munford, II
Bruce A. Walker
Class III directors who will continue to serve until the 1995 Annual
Meeting are:
Price H. Gwynn, III
John C. Purnell, Jr.
Russell M. Robinson, II
John W. Rosenblum
(c) At the Annual Meeting, the following matters were voted upon and
received the vote set forth below:
(1) Election of Directors. Provided that a quorum is present, the
nominees receiving the greatest number of votes cast are elected as directors,
and, as a result, in tabulating the vote, votes withheld have no effect upon
the election of directors. Each nominee for Class I director was elected,
having received the following vote:
Nominee: FOR WITHHELD
Robert I. Dalton, Jr. 4,920,682 10,938
Lee P. Dudley 4,922,773 8,847
Frank G. Louthan, Jr. 4,922,559 9,061
Wallace Stettinius 4,922,739 8,881
(2) Ratification of designation of Cooper & Lybrand as independent
accountants for the current year. Provided that a quorum is present,
ratification of the auditors requires the affirmative vote of a majority of
the votes cast, and as a result, in tabulating the vote, abstentions do not
have the effect of working against ratification. Designation of the auditors
was ratified, having received the following vote:
FOR: 4,922,760
AGAINST: 2,779
ABSTAIN: 6,081
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:
Cadmus Communications Corporation filed a Form 8-K on November 10, 1993
to report the acquisition of Waverly Press, the printing division of
Waverly, Inc. The related Waverly Press and Cadmus pro forma financial
statements were filed with Form 8-K/A on January 24, 1994.
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: February 14, 1994
/s/ C. Stephenson Gillispie, Jr.
C. Stephenson Gillispie, Jr.
President and Chief Executive Officer
Date: February 14, 1994
/s/ Michael Dinkins
Michael Dinkins
Vice President & Chief Financial Officer
<TABLE>
Exhibit 11
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
Three Months Ended Six Months Ended
December 31, December 31
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Net income per share
was computed as follows:
Primary:
1) Net income $ 1,509,914 $ 1,261,916 $ 2,747,461 $ 1,970,288
2) Weighted average
common shares
outstanding 5,963,312 5,946,868 5,954,797 5,959,123
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 94,467 11,463 56,224 12,511
4) Weighted average
common and common
equivalent shares
outstanding 6,057,779 5,958,331 6,011,021 5,971,634
5) Net income per share
(item 1 divided by
item 4) $ .25 $ .21 $ .46 $ .33
Fully diluted:
1) Net income $ 1,509,914 $ 1,261,916 $ 2,747,461 $ 1,970,288
2) Weighted average
common shares
outstanding 5,963,312 5,946,868 5,954,797 5,959,123
3) Incremental shares
under stock options
computed under the
treasury stock
method using the
market price of
issuer's common at
the end of the periods
if higher than the
average market price 160,463 23,010 152,085 23,799
4) Weighted average
common and common
equivalent shares
outstanding 6,123,775 5,969,878 6,106,882 5,982,922
5) Net income per share
(item 1 divided by
item 4) $ .25 $ .12 $ .45 $ .33
</TABLE>
Securities Exchange Commission
450 5th Street, N.W.
Washington, D. C. 20549