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 March 31, 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 April 29, 1994
Class Outstanding at April 29, 1994
Common Stock, $.50 Par Value 5,977,286
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Index
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets-- 3
March 31, 1994 and June 30, 1993
Consolidated Statements of Income-- 4
Three and Nine-Month Periods Ended
March 31, 1994 and 1993
Consolidated Statements of Cash Flows-- 5
Nine Months Ended March 31, 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
<TABLE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, June 30,
1994 1993
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and short term investments $ 9,106 $ 2,206
Accounts receivable 43,457 35,768
Inventories 15,170 10,263
Deferred income taxes 1,800
Prepaid expenses and other 816 529
Total current assets 70,349 48,766
Other assets 6,698 5,224
Investment in joint venture 6,802 6,499
Property, plant and equipment (net of
accumulated depreciation of $68,996
at March 31, 1994 and $63,114 at
June 30, 1993) 78,475 65,983
Goodwill and intangibles 7,624 7,717
Total Assets $169,948 $134,189
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 4,000
Current maturities of long-term debt $ 4,068 3,234
Accounts payable 21,815 11,898
Accrued expenses
Compensation 8,346 8,839
Other 6,387 4,194
Income taxes 360 62
Total current liabilities 40,976 32,227
Long-term debt 64,451 43,249
Other long-term liabilities 6,950 5,376
Deferred income taxes 3,211 2,644
Shareholders' equity:
Common stock 2,985 2,974
Capital in excess of par value 11,714 11,594
Retained earnings 39,661 36,125
Total shareholders' equity 54,360 50,693
Total Liabilities and Shareholders' Equity $169,948 $134,189
</TABLE>
See notes to consolidated financial statements.
<TABLE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per-share data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $67,413 $50,106 $177,987 $146,350
Operating expenses
Cost of sales 49,386 36,275 130,595 106,608
Selling and administrative 14,107 11,014 37,677 31,976
Operating income 3,920 2,817 9,715 7,766
Financial and other expenses
Financial 1,142 602 2,873 1,966
Other expenses (37) 229 106 583
Income before income taxes 2,815 1,986 6,736 5,217
Income taxes 1,133 774 2,708 2,035
Income before cumulative effect
of changes in accounting
principles 1,682 1,212 4,028 3,182
Cumulative effect of changes in
accounting for:
Postretirement benefits (net of
income tax benefit of $355) (532)
Income taxes 933
Net income $ 1,682 $ 1,212 $ 4,429 $ 3,182
Earnings per share:
Income before cumulative effect
of changes in accounting
principles $ .28 $ .20 $ .67 $ .53
Cumulative effect of changes in
accounting for postretirement
benefits and income taxes .07
Net income $ .28 $ .20 $ .74 $ .53
Average number of common shares
outstanding 6,069 5,982 6,054 5,973
Cash dividends per common share $ .05 $ .05 $ .15 $ .15
</TABLE>
See notes to consolidated financial statements.
<TABLE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
March 31,
1994 1993
<S> <C> <C>
Operations
Net income $ 4,429 $ 3,182
Items not affecting cash
Cumulative effect of changes in
accounting for:
Postretirement benefits 532
Income taxes (933)
Depreciation and amortization 8,355 7,175
Deferred income taxes 80
Equity in earnings of joint venture (410)
Other 613 678
12,586 11,115
Working capital sources (requirements)
(excluding debt and effects of acquisition)
Accounts receivable (1,225) (3,499)
Inventories (1,171) (1,025)
Accounts payable, accrued
expenses and income taxes 6,942 (532)
Other (254) (106)
4,292 (5,162)
Net cash flow from operations 16,878 5,953
Capital Investment
Cash paid for business acquired (16,178)
Cash paid to escrow for business acquired (1,000)
Investment in joint venture (289) (2,150)
Property, plant and equipment (9,589) (8,394)
Other 111 (1,321)
(26,945) (11,865)
Financing
Net borrowings (repayments) under bank
lines of credit (17,500) 3,438
New long-term debt 40,000 3,045
Repayment of long-term debt (4,464) (1,349)
Other (306) 43
Repurchase of common stock (215)
Shareholders' investment 131
Dividends (894) (896)
16,967 4,066
Increase (decrease) in cash and short term
investments 6,900 (1,846)
Cash and short term investments at beginning
of period 2,206 2,022
Cash and short term investments at end of period $ 9,106 $ 176
</TABLE>
See notes to consolidated financial statements.
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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, 1993.
2. Inventories are valued at the lower of cost or market. Cost is
determined principally by the last-in, first-out (LIFO) method: 73%
as of March 31, 1994 and 69% as of June 30, 1993. The components of
inventories were as follows (in thousands):
March 31, June 30,
1994 1993
Raw materials and supplies $ 4,906 $ 3,907
Work in process:
Materials 3,218 1,886
Other manufacturing costs 4,851 2,509
Finished goods 2,195 1,961
$15,170 $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):
Three Months Ended Nine Months Ended
March 31, March 31,
1994 1993 1994 1993
Interest expense $1,319 $ 837 $3,303 $2,694
Interest capitalized (114) (1) (315)
Discounts on accounts receivable,
net of service charges 90 66 252 202
Discounts taken on materials
purchased (267) (187) (681) (615)
$1,142 $ 602 $2,873 $1,966
Interest paid, net of amounts capitalized, totaled $353,000 and $394,000
for the quarters ended, and $2,333,000 and $1,963,000 for the nine-month
periods ended March 31, 1994 and 1993, 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 annual
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
at closing until February 15, 1995 in accordance with the Purchase
Agreement and is included in the Consolidated Balance Sheets as Other
Assets. Also, $2.6 million became due at March 31, 1994 as a result of
the expiration of a labor contingency and is included in the Consolidated
Balance Sheets as both Accounts Payable and Property, Plant and
Equipment. Payment of this amount was made on April 8, 1994. As
additional contingent payments are made, if any, 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.
Nine Months Ended
March 31,
1994 1993
Net sales $195,038 $183,955
Income before cumulative effect
of changes in accounting principles 5,226 4,828
Net income 5,627 4,828
Earnings per share:
Income before cumulative effect
of changes in accounting principles .86 .81
Net income .93 .81
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 March 31,
1994 was 4.188%.
On February 14, 1994, 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
13.5% in the first nine months of fiscal 1994 to $12.6 million compared to
$11.1 million in the same period of fiscal 1993. The primary factors were
a 26.6% increase in income before the cumulative effect of accounting
changes and higher depreciation expenses. Net cash flow from operations
for the first nine months of fiscal 1994 totaled $16.9 million, up
significantly from the $6.0 million recorded in the same period of 1993.
Net cash flow before financing activities and before acquisitions totaled
$7.4 million in fiscal 1994 compared to a cash deficit of $3.8 million in
1993.
Working capital, excluding the effects of cash, debt and acquisitions of
the net assets of Waverly Press (now Cadmus Journal Services), declined
$4.3 million for the first nine months of fiscal 1994. The primary factor
in the decline was an increase in accounts payable and accrued expenses
which offset increased accounts receivable and inventories. The increase
in accounts payable and accrued expenses was due to seasonal fluctuations
and more effective use of trade credit. The increase in accounts
receivable was attributed to higher sales levels. The inventory increase
was primarily due to higher levels at work-in-process at March 31, 1994
which were partially offset by reduced paper inventories resulting from
inventory management initiatives.
Capital investment in property, plant and equipment totaled $9.6 million
during the first nine months of fiscal 1994. Significant projects included
in this amount were the purchase of new composition software to integrate
text and graphics for research journals and the rebuilding of a six-unit
web press at Byrd Press. Other significant capital investments included
the purchase of a new six-unit sheetfed press at Washburn Graphics and a
high-end digital camera at 3 Score. 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. For fiscal 1994, the Company projects
that capital spending will total approximately $12.5 million. This amount
includes capital investment requirements of the recently acquired Cadmus
Journal Services.
Total debt at March 31, 1994 was $68.5 million, representing an increase of
$18.0 million from the $50.5 million at June 30, 1993. The Company's debt-
to-capital ratio at March 31, 1994 was 55.8% compared to 49.9% at June 30,
1993. This increase was primarily due to additional 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 senior
notes, which have an average life of 8.1 years with a final maturity of 10
years, carry a fixed interest rate of 6.74%. Coincidental with the
placement of the senior notes, the Company entered into an interest rate
swap agreement to effectively convert $35 million of the senior notes to
floating rate debt. The Company also entered into agreements with four
banks on February 14, 1994, for a $25 million revolving credit facility.
See Note 6 of the Notes to Consolidated Financial Statements for additional
information on these transactions.
Results of Operations
Net sales in the third quarter of fiscal 1994 increased 34.5% to
$67,413,000 compared to $50,106,000 for the same period last year.
Excluding the effect of the acquisition of Cadmus Journal Services and the
merger of Vaughan Printers, sales rose 12.6%. Operating income rose 39.2%
to $3,920,000 in 1994 from $2,817,000 in 1993. Net income increased to
$1,682,000, or $.28 per share, in 1994, up 38.8% from the $1,212,000, or
$.20 per share, in 1993.
For the nine-month period ended March 31, 1994, net sales were up by 21.6%
to $177,987,000 compared to $146,350,000 for fiscal 1993. Operating income
for the nine months was up by 25.1% to $9,715,000 from $7,766,000 in the
prior year. Income before changes in accounting principles for the same
period was $4,028,000, or $.67 per share, an increase of 26.6% from the
$3,182,000, or $.53 per share, recorded in fiscal 1993. Net income
increased to $4,429,000, or $.74 per share, in 1994, up 39.2% from the
$3,182,000, or $.53 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 nine-month
periods ended March 31, 1994 and 1993:
Three Months Ended Nine Months Ended
March 31, March 31,
1994 1993 1994 1993
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 73.3 72.4 73.4 72.8
Gross profit 26.7 27.6 26.6 27.2
Selling and administrative 20.9 22.0 21.2 21.9
Operating income 5.8 5.6 5.4 5.3
Financial expense 1.7 1.2 1.6 1.3
Other expenses (0.1) 0.5 0.0 0.4
Income before income taxes 4.2 3.9 3.8 3.6
Income taxes 1.7 1.5 1.5 1.4
Income before cumulative
effect of changes in
accounting principles 2.5 2.4 2.3 2.2
Cumulative effect of changes
in accounting principles 0.0 0.0 0.2 0.0
Net income 2.5% 2.4% 2.5% 2.2%
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 Nine Months Ended
March 31, March 31,
1994 1993 1994 1993
Printing 75.4% 73.6% 71.6% 73.0%
Marketing 16.8 19.0 20.2 21.9
Publishing 7.8 7.4 8.2 5.1
100.0% 100.0% 100.0% 100.0%
Sales increased in each business group for both the three and nine-month
periods, respectively, of fiscal 1994 compared to the same period of fiscal
1993 as follows: printing (35.4% and 17.6% increases); marketing (16.5%
and 10.7% increases); and publishing (40.0% and 93.7% increases).
Results of Operations (continued)
The increase in printing sales for both the three and nine-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 magazines and specialty packaging, and strong annual
report sales. These increases were partially offset by declines in both
promotional printing sales, which is attributed to primarily the merger of
Vaughan, and financial printing sales, which is due to a large one-time job
in the prior year. Adjusted for the acquisition of Cadmus Journal Services
and the merger of Vaughan, printing sales increased from prior year sales
by 6.9% for the third quarter and 3.8% for the nine-month period.
The increase in marketing revenues was driven by substantial growth in
direct marketing sales and continued growth in point-of-sale revenues.
These increases were partially offset by a decline in catalog production
services sales due to the loss of a major account in January of fiscal
1993.
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 third quarter of fiscal 1994 was 73.3% and for the
nine-month period was 73.4% of sales compared to 72.4% and 72.8%,
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 for the
quarter to 20.9% of sales compared to 22.0% of sales in fiscal 1993 and
decreased to 21.2% of sales for the nine-month period compared to 21.9% 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 89.7% and 46.1% for the three and nine-month
periods ended March 31, 1994, respectively, due primarily to higher
interest expense and lower capitalized interest. The higher interest
expense was the result of increased debt levels used to fund the
acquisition of Cadmus Journal Services, which were partially offset by
lower average interest rates.
The Company's tax rate increased to 40.2% from 39% for both the three and
nine-month periods 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 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 January 24, 1994, Cadmus Communications Corporation filed a
Form 8-K/A, Amendment No. 1 to Form 8-K dated November 10,
1993.
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: May 9, 1994
/s/ C. Stephenson Gillispie, Jr.
C. Stephenson Gillispie, Jr.
President and Chief Executive
Officer
Date: May 9, 1994
/s/ Michael Dinkins
Michael Dinkins
Vice President and Chief
Financial Officer
Exhibit 11
<TABLE>
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
Three Months Ended Nine Months Ended
March 31, March 31
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net income per share
was computed as follows:
Primary:
1) Net income $ 1,682,015 $ 1,210,535 $ 4,429,476 $ 3,180,823
2) Weighted average
common shares
outstanding 5,970,286 5,948,951 5,959,291 5,954,961
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 98,464 33,151 95,098 17,920
4) Weighted average
common and common
equivalent shares
outstanding 6,068,750 5,982,102 6,054,389 5,972,881
5) Net income per share
(item 1 divided by
item 4) $ .28 $ .20 $ .74 $ .53
Fully diluted:
1) Net income $ 1,682,015 $ 1,210,535 $ 4,429,476 $ 3,180,823
2) Weighted average
common shares
outstanding 5,970,286 5,948,951 5,959,291 5,954,961
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 161,194 34,756 155,124 36,639
4) Weighted average
common and common
equivalent shares
outstanding 6,131,480 5,983,707 6,114,415 5,991,600
5) Net income per share
(item 1 divided by
item 4) $ .27 $ .20 $ .72 $ .53
</TABLE>
Securities Exchange Commission
450 5th Street, N.W.
Washington, D. C. 20549
