SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 21, 1996
CADMUS COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Charter)
VIRGINIA
(State or Other Jurisdiction
of Incorporation)
0-12954
(Commission
File Number)
54-1274108
(I.R.S. Employer
Identification No.)
6620 WEST BROAD STREET, SUITE 240
RICHMOND, VIRGINIA 23230
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(804) 287-5680
6620 WEST BROAD STREET, SUITE 200
RICHMOND, VIRGINIA 23230
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits.
The following financial statements and pro forma financial information omitted
from the Form 8-K dated June 5, 1996 (May 21, 1996, date of earliest event
reported) in reliance upon Item 7(a)(4) and 7(b)(2) of Form 8-K are filed
herewith.
(a) Consolidated Financial Statements of Lancaster Press, Inc. and
Subsidiary
Report of Independent Public Accountants
Consolidated Balance Sheets - As of March 31, 1996 and 1995
Consolidated Statements of Operations - For each of the three
years in the period ended March 31, 1996
Consolidated Statements of Stockholders' Equity (Deficit) -
For each of the three years in the period ended March 31,
1996
Consolidated Statements of Cash Flows - For each of the three
years in the period ended March 31, 1996
Notes to Consolidated Financial Statements
(b) Pro Forma Consolidated Financial Statements of Cadmus Communications
Corporation and Subsidiaries
Pro Forma Consolidated Balance Sheet - As of March 31, 1996
Pro Forma Consolidated Statement of Income - For the Nine
Months Ended March 31, 1996 Pro Forma Consolidated Statement
of Income - For the Year Ended June 30, 1995
Notes to Pro Forma Consolidated Financial Statements
(c) Exhibit
23.1 Consent of Independent Public Accountants
<PAGE>
LANCASTER PRESS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Lancaster Press, Inc.:
We have audited the accompanying consolidated balance sheets of Lancaster Press,
Inc. (a Delaware corporation) and subsidiary as of March 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended March
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lancaster Press, Inc. and
subsidiary as of March 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1996, in conformity with generally accepted accounting principles.
Lancaster, Pa.,
May 24, 1996
<PAGE>
LANCASTER PRESS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, March 31,
ASSETS 1996 1995
------ ------------------- -------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,530,057 $ 574,682
Accounts receivable, net of allowance for doubtful accounts of
$306,619 and $381,777 9,411,027 8,422,898
Inventories 5,816,784 5,583,774
Prepaid expenses 464,791 355,731
Deferred income taxes 661,366 653,302
------------------ ------------------
Total current assets 17,884,025 15,590,387
------------------ ------------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 8,124,330 8,570,648
Machinery and equipment 21,057,924 19,691,337
------------------ ------------------
29,182,254 28,261,985
Less-Accumulated depreciation (10,490,344) (9,561,034)
------------------ ------------------
Net property, plant and equipment 18,691,910 18,700,951
------------------ ------------------
DEFERRED DEBT ISSUANCE COSTS 102,417 153,947
------------------ ------------------
GOODWILL, net of accumulated amortization of $5,687,306 and
$4,997,125 14,907,380 15,562,561
------------------ ------------------
PENSION ASSET 252,993 --
------------------ ------------------
OTHER 40,550 40,550
------------------ ------------------
$ 51,879,275 $ 50,048,396
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,633,286 $ 2,597,134
Accounts payable 3,802,683 1,390,692
Accrued expenses 3,154,891 2,854,686
Accrued income taxes 41,171 378,077
------------------ ------------------
Total current liabilities 9,632,031 7,220,589
------------------ ------------------
LONG-TERM DEBT 38,603,882 41,125,427
------------------ ------------------
DEFERRED INCOME TAXES 2,419,647 2,075,876
------------------ ------------------
ACCRUED PENSION COST 240,660 74,857
------------------ ------------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 7)
STOCKHOLDERS' EQUITY (DEFICIT):
Class A Common stock, $.01 par value, 490,000
shares authorized and 251,400 shares issued
and outstanding 2,514 2,514
Class B Common stock, $.01 par value, 775,000
shares authorized and 773,245 shares issued
and outstanding 7,732 7,732
Additional paid-in capital 3,602,533 3,602,533
Less - Acquisition cost in excess of predecessor basis (4,666,806) (4,666,806)
Retained earnings 2,038,121 605,674
Less - Treasury stock (1,039) --
Total stockholders' equity (deficit) 983,055 (448,353)
------------------ ------------------
$ 51,879,275 $ 50,048,396
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LANCASTER PRESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended March 31,
1996 1995 1994
<S> <C>
NET SALES $ 58,256,486 $ 52,882,014 $ 48,772,309
---------------- ---------------- ----------------
COSTS AND EXPENSES:
Cost of sales, excluding depreciation 42,445,923 36,279,498 32,530,760
Selling, general and administrative 6,164,635 6,591,924 6,005,083
Depreciation 2,264,507 1,739,156 1,608,191
Interest, net of interest income of $57,851, $152,121 and
$127,934 3,945,706 4,588,070 6,045,438
Goodwill amortization 690,180 685,320 685,320
------------------ ------------------ ------------------
55,510,951 49,883,968 46,874,792
------------------ ------------------ ------------------
Income before income taxes and extraordinary item 2,745,535 2,998,046 1,897,517
INCOME TAXES 1,313,088 1,566,211 1,390,194
------------------ ------------------ ------------------
Income before extraordinary item 1,432,447 1,431,835 507,323
EXTRAORDINARY LOSS FROM DEBT RESTRUCTURING, NET OF INCOME TAX
BENEFIT OF $514,000 -- 1,380,117 --
---------------- ---------------- ----------------
NET INCOME $ 1,432,447 $ 51,718 $ 507,323
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LANCASTER PRESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Acquisition
Cost in
Class A Class B Additional Excess of
Common Common Paid-In Predecessor Retained Treasury
Stock Stock Capital Basis Earnings Stock Total
------ ------ ---------- ------------ ---------- -------- ------------
<S> <C>
BALANCE AT MARCH 31, 1993 $2,503 $7,000 $2,932,052 $(4,666,806) $ 46,633 $ -- $(1,678,618)
Net income -- -- -- -- 507,323 -- 507,323
------ ------ ---------- ----------- ---------- ------- -----------
BALANCE AT MARCH 31, 1994 2,503 7,000 2,932,052 (4,666,806) 553,956 -- (1,171,295)
--
Exercise of stock options 1 -- 791 -- -- -- 792
Issuance of Common stock 10 732 669,690 -- -- -- 670,432
Net income -- -- -- -- 51,718 -- 51,718
------ ------ ---------- ----------- ---------- ------- -----------
BALANCE AT MARCH 31, 1995 2,514 7,732 3,602,533 (4,666,806) 605,674 -- (448,353)
Purchase of 100 shares of Class A
Common stock at $10.39 per share -- -- -- -- -- (1,039) (1,039)
Net income -- -- -- -- 1,432,447 -- 1,432,447
------ ------ ---------- ----------- ---------- ------- -----------
BALANCE AT MARCH 31, 1996 $2,514 $7,732 $3,602,533 $(4,666,806) $2,038,121 $(1,039) $ 983,055
====== ====== ========== =========== ========== ======= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LANCASTER PRESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended March 31,
-----------------------------------------------------------------
1996 1995 1994
------------------- ------------------- ------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,432,447 $ 51,718 $ 507,323
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 2,264,507 1,739,156 1,608,191
Amortization 790,103 936,404 1,039,656
Provision for doubtful accounts -- 75,000 100,000
Inventory valuation reserve 50,000 -- --
(Gain) loss on sale of property, plant and
equipment 6,190 -- (69,961)
Deferred income tax (benefit) provision 335,707 (102,944) --
Write-off of deferred financing costs and original
issue discount -- 1,223,685 480,140
Noncash debt refinancing charge -- 670,432 --
(Increase) decrease in assets-
Accounts receivable (988,129) (1,959,633) 900,466
Inventories (283,010) (971,567) (178,994)
Prepaid expenses and other assets (121,393) 200,123 (297,602)
Increase (decrease) in liabilities-
Accounts payable 2,411,991 90,545 (308,348)
Accrued expenses 300,205 237,857 685,501
Accrued income taxes (336,906) 108,331 198,219
Accrued pension cost (74,857) (48,332) (40,085)
------------------ ------------------ ------------------
Net cash provided by operating activities 5,786,855 2,250,775 4,624,506
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment 191,400 27,906 221,452
Capital expenditures (2,413,056) (6,141,497) (877,585)
Cash paid for acquisition (75,000) -- --
------------------ ------------------ -------------
Net cash used in investing activities (2,296,656) (6,113,591) (656,133)
------------------ ------------------ ------------------
</TABLE>
(Continued)
<PAGE>
LANCASTER PRESS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For the Year Ended March 31,
-----------------------------------------------------------------
1996 1995 1994
------------------- ------------------- ------------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt $ (2,613,917) $ (4,580,855) $ (2,195,475)
Proceeds from issuance of long-term debt 80,132 4,624,083 --
Deferred financing costs -- (32,132) --
Stock options exercised -- 792 --
Purchase of Common stock (1,039) -- --
Net cash provided by (used in) financing
activities (2,534,824) 11,888 (2,195,475)
------------------- ------------------ ------------------
Net (decrease) increase in cash and cash
equivalents 955,375 (3,850,928) 1,772,898
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 574,682 4,425,610 2,652,712
------------------ ------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,530,057 $ 574,682 $ 4,425,610
================ ================ ================
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest $ 3,954,842 $ 4,755,287 $ 5,903,058
=============== =============== ================
Income taxes $ 1,328,202 $ 1,042,500 $ 1,191,975
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
LANCASTER PRESS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. BACKGROUND:
Lancaster Press, Inc. and subsidiary (the Company) is a specialized printer of
scientific, medical and technical journals. Through Tapsco, Inc., a wholly owned
subsidiary, the Company operates a composition business, which also includes
electronic document production. The Company's market is primarily in the
Northeastern United States.
On May 21, 1996, the Company entered into a Stock Purchase Agreement (the
Agreement) with Cadmus Communications Corporation. The Agreement provides for
the purchase of all of the stock of the Company and the cancellation of all
outstanding options and warrants. Additionally, the Agreement provides for the
repayment of the senior and senior subordinated notes, as well as the equipment
financing notes (see Note 4). The purchase price, which includes the repayment
of debt, is approximately $57 million, subject to adjustment based on the
working capital determined as of the closing of the transaction. This
transaction will be accounted for as a purchase business combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary. All significant intercompany transactions and accounts have been
eliminated in consolidation.
Major Customers
For fiscal 1996, the Company's three largest customers accounted for 14%, 12%
and 10% of consolidated net sales. These same three customers accounted for 12%,
13% and 12%, respectively, in fiscal 1995 and 12%, 14% and 11%, respectively, in
fiscal 1994 of consolidated net sales. Additionally, one other customer
accounted for 10% of fiscal 1994 consolidated net sales. As of March 31, 1996,
the Company had accounts receivable from these customers of $1,608,507, $751,793
and $723,036, respectively.
Revenue Recognition
All of the Company's products are produced to customer specifications. Revenue
is recognized when the product has been shipped or electronically transferred to
the customer.
Inventories
Inventories are stated at the lower of cost, on a first-in, first-out (FIFO)
basis, or market. Inventories consist of the following:
March 31,
1996 1995
Raw materials $ 2,743,955 $ 2,856,869
Work-in-process 3,072,829 2,726,905
------------------ ------------------
$ 5,816,784 $ 5,583,774
============== ==============
Cash and Cash Equivalents
The Company's cash management system provides for the short-term investment of
cash and the transfer or deposit of sufficient funds to cover checks as they are
submitted for payment. The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. Cash equivalents consist of money market funds.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided for
using the straight-line method over the estimated useful lives of ten to thirty
years for buildings and three to ten years for machinery and equipment.
When assets are retired or sold, the asset cost and related accumulated
depreciation are eliminated from the respective accounts and the resulting gain
or loss is included in the results from operations. The cost of maintenance and
repairs is charged to operating expense as incurred and the cost of major
replacements and significant improvements are capitalized. Interest expense
related to and incurred during the construction period of buildings and
machinery and equipment is capitalized as part of the cost of such assets and
depreciated over the estimated useful life of the asset. Interest of $117,977
was capitalized in 1995. No interest was capitalized in 1996 or 1994.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS 109, deferred tax assets or liabilities are computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using the enacted statutory tax rates. Deferred income tax expenses
or credits are based on the changes in the deferred tax asset or liability from
period to period.
<PAGE>
Deferred Debt Issuance Costs/Debt Discount
Debt issuance costs and debt discount are amortized on a straight-line and
interest method, respectively, over the term of the related debt agreements.
Goodwill
Goodwill of approximately $20,595,000 is being amortized on a straight-line
basis primarily over 30 years (see Note 9). The Company continually evaluates
whether events or circumstances have occurred that indicate that the remaining
useful lives of the asset should be revised or that the remaining balance of
such asset may not be recoverable. As of March 31, 1996, the Company believes
that no revisions of the remaining useful lives or write-downs of the asset are
required.
Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates.
Reclassifications
Certain reclassifications have been made in the prior year financial statements
to conform with the current year presentation.
3. ACCRUED EXPENSES:
Accrued expenses consist of the following:
March 31,
1996 1995
-------------- --------------
Accrued compensation and related costs $1,857,475 $1,661,577
Accrued customer discounts 667,934 618,886
Other 629,482 574,223
---------- ----------
$3,154,891 $2,854,686
=========== ==========
<PAGE>
4. DEBT:
March 31,
1996 1995
$20,482,761 senior note due 1997
(less unamortized discount of
$84,951 and $133,343) $11,397,810 $13,349,418
$22,757,239 senior subordinated
notes due 2000 22,757,239 22,757,239
Equipment financing notes due
through 2005 4,109,657 4,470,940
Mortgage payable 2,725,338 2,746,536
Obligation under capital lease 247,124 398,428
-------------- -------------
41,237,168 43,722,561
Less-Current portion (2,633,286) (2,597,134)
-------------- ------------
$38,603,882 $41,125,427
================ =============
The $20,482,761 senior note, $9,000,000 of which has been repaid through March
31, 1996, was issued on December 15, 1987 and bears interest, due quarterly, at
10.5% per year. The note is unsecured and requires a principal payment of
$2,000,000 on March 31, 1997, with the remaining unpaid balance due on the last
business day of December 1997. Interest expense and amortization of the debt
discount were $1,439,285 and $48,392 in 1996, $1,648,269 and $42,278 in 1995 and
$1,861,186 and $48,163 in 1994, respectively. This note is senior in rights to
the other notes.
On December 15, 1987, the Company also issued two senior subordinated notes
totaling $22,757,239. These notes are subordinate and junior in right of payment
(as defined in the note agreement) to the senior note. Effective August 15,
1994, the Company entered into a refinancing agreement with the original debt
holders, under which these notes were canceled and new notes were issued
totaling $22,757,239. Interest is due quarterly, with the interest rate reduced
from 14% per year to 8% per year through August 14, 1996, and 10% per year
thereafter. The principal repayment date was extended from December 1998 to
December 2000. In connection with the refinancing, the Company issued 73,245
shares of Class B Common stock (with an estimated value of $661,402) to the
holders of the senior subordinated notes and 1,000 shares of Class A Common
stock (with an estimated value of $9,030) to a key employee. Furthermore, in
conjunction with the refinancing, the remaining unamortized debt discount and
debt issuance cost of $1,006,340 and $217,345, respectively, were written off as
of the transaction date. These costs, along with the value of the Common stock
issued, were recorded as an extraordinary loss of $1,894,117, net of the
applicable income tax benefit of $514,000, in the accompanying financial
statements. Interest expense was $1,850,922 in 1996, $2,366,212 in 1995 and
$85,000 in 1994. Amortization of the debt discount was $3,230,263 in 1995 and
$223,048 in 1994.
On November 14, 1991, the Company issued an aggregate of $1,300,000 in junior
subordinated notes that had an original due date of November 15, 1996. These
notes were issued to the holders of the senior subordinated notes. As part of
the senior subordinated notes refinancing agreement, these notes, along with all
accumulated interest totaling $1,240,515, were paid in full on September 30,
1994. The notes bore interest at a fixed rate of 14% plus contingent interest at
a rate of 10%. The Company had the option to issue a note for the interest or to
pay it in cash. Total interest expense was $285,363 and $480,140, respectively,
for the years ended March 31, 1995 and 1994 and the Company issued notes for the
1994 interest.
The senior and senior subordinated notes are held by the Company's Class B
stockholders, and each of the notes issued provides for a premium to be paid
upon prepayment of the notes, as defined. In addition, the Acquisition Financing
Agreement, under which these notes were issued, requires, among other things,
that the Company maintain a specified current ratio and interest coverage ratio,
as well as a specified level of working capital and consolidated net worth.
Furthermore, the Acquisition Financing Agreement imposes, among other things,
restrictions with respect to additional indebtedness, guarantees, liens,
investments, distributions, equity transactions and capital expenditures.
On September 30, 1994, the Company entered into a Loan and Security Agreement,
under which the Company has the right to issue up to four notes in an aggregate
principal amount not to exceed $5,000,000. As of March 31, 1996, the Company had
issued four notes totaling $4,704,215. Each note bears interest at LIBOR plus
2.40%, and is payable in 40 quarterly installments with the final payment under
these notes due March 30, 2005. These notes are secured by the related equipment
with a net book value of $4,720,070 at March 31, 1996. The Loan and Security
Agreement restricts the Company from making any prepayments on the senior
subordinated debt. Furthermore, upon scheduled repayment of the senior
subordinated debt in 2000, the Loan and Security Agreement requires either
prepayment of the notes, or the granting of additional collateral, as well as
the maintenance of specified cash flow ratio levels. Total interest expense was
$350,899 and $27,840 for the years ended March 31, 1996 and 1995, respectively.
On February 24, 1992, the Company issued a $2,800,000 mortgage note for the
purchase of a building. The mortgage note bears interest at 10% and requires
annual payments of principal and interest of $294,864 with a balloon payment of
$2,549,591 due on January 24, 2002. The mortgage note is subordinate in right of
payment to all other debt and is secured by the related land and building with a
net book value of $3,680,451 at March 31, 1996. Interest expense was $273,666,
$275,670 and $277,489 for the years ended March 31, 1996, 1995 and 1994,
respectively.
<PAGE>
Annual principal payments, net of unamortized discount at March 31, 1996,
required under all agreements are as follows:
Fiscal Year Amount
1997 $ 2,633,286
1998 10,002,964
1999 498,946
2000 501,933
2001 23,262,472
2002 and thereafter 4,337,567
---------
$ 41,237,168
==========
Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the Company believes that the carrying
amount of debt at March 31, 1996 approximates fair value.
5. STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock
At March 31, 1996, the Company had 251,400 shares of Class A Common stock and
773,245 shares of Class B Common stock outstanding. Both classes of Common stock
have identical rights and privileges, except that the Class B shareholders are
entitled to elect one more director than the number elected by the Class A
shareholders.
The Company entered into a Shareholders' Agreement with the holders of the Class
A Common stock under which the Company has the right of first refusal in the
event a shareholder offers to sell or in any manner dispose of the stock. If the
Company does not exercise that right, existing shareholders can acquire the
shares based on the terms of the Shareholders' Agreement. The purchase price
will be at either cost, book value or fair market value, as defined, based on
the date and reason for the disposition of the stock. The Shareholders'
Agreement is in effect until the earlier of the sale of at least two-thirds of
all classes of the Company's Common stock or an underwritten public offering of
a specified size, as defined in the Shareholders' Agreement. See Note 1
regarding the sale of the Company's stock to Cadmus Communications Corporation.
During 1995, the Company increased the number of shares of Class A Common stock
authorized and Class B Common stock authorized by 33,648 and 75,000 shares,
respectively.
<PAGE>
Common Stock Options
The Company has granted options to purchase shares of Class A Common stock to
certain officers. Information relative to the Company's stock option activity
is as follows:
Option Price
Options (Per Share)
Balance as of March 31, 1993 61,700 $5.13 - $7.92
Granted -- --
Exercised -- --
Terminated -- --
------ -------------
Balance as of March 31, 1994 61,700 $5.13 - $7.92
Granted 16,000 $5.13 - $9.03
Exercised (100) $7.92
Terminated -- --
------ -------------
Balance as of March 31, 1995 77,600 $5.13 - $9.03
Granted -- --
Exercised -- --
Terminated (9,900) $5.13 - $9.03
------ -------------
Balance as of March 31, 1996 67,700 $5.13 - $9.03
====== =============
Options exercisable as of March 31, 1996 59,450
======
Of the 16,000 options granted in 1995, 7,789 options were issued to existing
option holders as part of the refinancing of the senior subordinated debt
discussed in Note 4. Subsequent to March 31, 1996, options to purchase 24,000
shares of Class A Common stock were granted. In connection with the May 21, 1996
transaction with Cadmus Communications Corporation, all of the outstanding
options became fully vested and were purchased by the Company from the option
holders at that date for approximately $419,000.
Common Stock Warrants
The Company granted warrants to an affiliate of the Class B Common stockholders
to purchase 32,944 shares of Class A Common stock at $7.09 per share. In
connection with the May 21, 1996 transaction with Cadmus Communications
Corporation, these warrants were purchased by the Company from the warrant
holders for approximately $127,000.
6. EMPLOYEE BENEFIT PLANS:
The Company has several pension plans that cover substantially all employees.
Certain union employees are covered by a union-sponsored, multiemployer pension
plan. Contributions made to the multiemployer pension plan are determined in
accordance with the provisions of a negotiated labor contract and are generally
based on the number of employees and shifts worked. At March 31, 1996, no
withdrawal liability existed.
Other union employees are covered by a noncontributory defined benefit pension
plan. Employees with 5 or more years of service are entitled to annual pension
benefits, beginning at the normal retirement age of 65, equal to $139.92 per
year multiplied by the number of years of credited service. The Company's
funding policy is to contribute annually $3.60 times each qualified shift
worked. The plan's assets are invested in mutual funds and money market
accounts.
The following table sets forth the plan's funded status:
<TABLE>
<CAPTION>
March 31,
1996 1995
<S> <C>
Actuarial present value of benefit obligations-
Vested benefits $ 1,955,467 $ 1,755,514
Nonvested benefits 4,766 4,156
-------------------- ------------------
Accumulated benefit obligation $ 1,960,233 $ 1,759,670
================ ==============
Projected benefit obligation $ 1,960,233 $ 1,759,670
Plan assets at fair value 1,719,573 1,449,770
-------------------- ------------------
Projected benefit obligation in excess of
plan assets (240,660) (309,900)
Unrecognized net gain (29,618) (74,922)
Unrecognized prior service cost 114,197 120,499
Unrecognized net obligation at date of
initial application 168,414 189,466
-------------------- ------------------
Net prepaid (accrued) pension cost $ 12,333 $ (74,857)
================ ==============
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
For the Year Ended March 31,
-----------------------------------------------------------------
1996 1995 1994
------------------- ------------------- ------------------
<S> <C>
Service cost-benefits earned during the
period $ 31,595 $ 41,390 $ 40,587
Interest cost on projected benefit
obligation 134,650 130,486 125,234
Actual return on plan assets (219,646) (111,204) 5,542
Net amortization and deferral 129,032 33,337 (80,706)
------------------ ------------------ ------------------
Net periodic pension cost $ 75,631 $ 94,009 $ 90,657
============ ============ ============
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25%, 8.0% and 7.25% in 1996,
1995 and 1994, respectively. The expected long-term rate of return on assets
was 8.0% for 1996, 1995 and 1994.
<PAGE>
Nonunion employees of the Company are covered under a noncontributory defined
contribution pension plan. Annual contributions to the plan are based on a
percentage of earnings. The Company also maintains a contributory defined
contribution plan covering certain employees whereby the Company will match
employee contributions up to 6% of annual compensation. Total pension expense
for all of the above plans amounted to $705,734, $678,298 and $613,676 for the
years ended March 31, 1996, 1995 and 1994, respectively.
The Company has an employee incentive bonus plan. Under this plan, certain
employees receive bonuses based on percentages of target profits and base
compensation.
7. COMMITMENTS AND CONTINGENCIES:
The Company has entered into employment contracts with certain key employees
that require aggregate annual base salary payments of approximately $530,000.
In addition, the contracts provide for bonuses based on percentages of target
profits, as defined.
The Company entered into a consulting services agreement with an affiliate of
the Class B Common stockholders and debt holders effective January 1, 1992. The
agreement requires payment of $80,000 per year.
The Company leases outside warehouse facilities for storing back issues of
journals and paper. Rent expense under these noncancellable operating leases was
$259,791, $159,865 and $98,403 for the years ended March 31, 1996, 1995 and
1994, respectively. Minimum future rental commitments under these noncancellable
operating leases are $200,252 in 1997, $107,580 in 1998, $107,580 in 1999,
$107,580 in 2000 and $62,801 in 2001.
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the outcome of these claims will not
have a materially adverse effect on the Company's financial position or results
of operations.
8. INCOME TAXES:
The provision for income taxes consists of the following:
For the Year Ended March 31,
------------------------------------------------
1996 1995 1994
---------- -------------- --------------
Current tax expense-
Federal $ 806,708 $ 901,717 $1,012,926
State 170,673 253,438 377,268
---------- -------------- --------------
977,381 1,155,155 1,390,194
Deferred tax provision
(benefit) 335,707 (102,944) --
---------- -------------- -------------
$1,313,088 $1,052,211 $1,390,194
========== ========== ==========
<PAGE>
The high effective tax rates are due to the effect of accounting for the
acquisition of the Company in 1987. For financial reporting purposes, the
purchase price has been allocated based on an estimate of the fair value of the
assets acquired and liabilities assumed. A step-up in basis was not recorded for
income tax purposes and, as such, deferred income taxes of approximately
$2,699,000 were recorded as of the date of the acquisition for the differences
in the financial reporting and tax basis of assets and liabilities. The
amortization of the excess of the fair value over the value of the net assets
acquired (goodwill) is not deductible for tax purposes.
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax basis of assets and
liabilities given the provisions of enacted tax laws. Deferred taxes are
comprised of the following:
March 31,
1996 1995
----------- -----------
Gross current deferred tax assets $ (661,366) $ (653,302)
Gross noncurrent deferred tax assets (261,873) (411,698)
Gross noncurrent deferred tax liabilities 2,681,520 2,487,574
Total noncurrent deferred taxes 2,419,647 2,075,876
------------ -----------
Net deferred tax liability $1,758,281 $1,422,574
============ ===========
The Company did not record any valuation allowances against deferred tax assets
at March 31, 1996 or 1995.
The tax effect of significant temporary differences representing deferred tax
(assets) and liabilities are as follows:
March 31,
1996 1995
----------- -----------
Depreciation $2,017,370 $2,487,574
Receivable reserve (122,648) (152,711)
Inventory (138,768) (173,668)
Vacation (278,869) (307,524)
Debt discount (255,384) (346,389)
Other, net 536,580 (84,708)
---------- ----------
$1,758,281 $1,422,574
========== ==========
9. ACQUISITION:
On May 1, 1995, the Company purchased substantially all of the operating assets
of Fourth Mesa, Inc., a Maryland corporation, which were used in the seller's
electronic publishing consultation business. This transaction was accounted for
as a purchase. The purchase price was $140,000, of which $75,000 was paid in
fiscal 1996 and the remaining amount is due in fiscal 1997. The results of the
acquired business have been included in the consolidated financial statements
from the date of acquisition. The excess of the purchase price over the fair
value of the net assets acquired (goodwill), is $35,000 and is being amortized
over three years on a straight-line basis. As this transaction is immaterial to
the Company, no pro forma information is presented. The following table displays
the net non-cash assets that were consolidated as a result of this transaction:
Non-cash assets:
Property and equipment $ 40,000
Goodwill 35,000
----------
Net non-cash assets acquired and cash paid $ 75,000
==========
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Pro Forma Consolidated Financial Statements
(Unaudited)
The following unaudited pro forma consolidated balance sheet (the "Balance
Sheet") as of March 31, 1996, and the pro forma consolidated statements of
income for the nine months ended March 31, 1996 and for the year ended June 30,
1995 (the "Statements of Income"), give effect to the acquisition by Cadmus
Journal Services, Inc., a wholly-owned subsidiary of Cadmus Communications
Corporation ("Cadmus" or the "Company"), of all the outstanding stock of
Lancaster Press, Inc. ("Lancaster"), on May 21, 1996, for total consideration,
including transaction costs, of approximately $58.7 million. The acquisition has
been accounted for using the purchase method of accounting.
The Balance Sheet presents the financial position of the Company and Lancaster
as of March 31, 1996, assuming that the acquisition occurred as of that date.
The Statements of Income have been prepared assuming the acquisition occurred as
of the beginning of the periods presented.
The unaudited pro forma consolidated financial statements are provided for
informational purposes only, and are not necessarily indicative of the past or
future results of operations or financial position of the Company that would
have occurred had the acquisition been consummated on the respective dates
assumed. The unaudited pro forma consolidated financial statements have been
prepared on the basis of preliminary estimates of the fair value of the assets
and liabilities acquired.
This information should be read in conjunction with the previously filed Form
8-K, dated June 5, 1996 (May 21, 1996, date of earliest event reported), the
previously filed historical consolidated financial statements and accompanying
notes of Cadmus, contained in its Annual Report on Form 10-K for the fiscal year
ended June 30, 1995, and in its fiscal 1996 Quarterly Reports on Form 10-Q, and
in conjunction with the historical consolidated financial statements and
accompanying notes of Lancaster Press, Inc., included elsewhere in this Form
8-K/A.
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Pro Forma Consolidated Balance Sheet (Unaudited)
<TABLE>
<CAPTION>
As of March 31, 1996
Historical Pro Forma
(In thousands) Cadmus Lancaster Adjustments Pro Forma
<S><C>
ASSETS
Current assets
Cash and cash equivalents $ 2,460 $ 1,530 $ $ 3,990
Accounts receivable, net 69,106 9,411 (300)(a) 78,217
Inventories 20,426 5,817 26,243
Deferred income taxes 1,092 661 1,753
Prepaid expenses and other 3,964 465 4,429
Total current assets 97,048 17,884 (300) 114,632
Property, plant, and equipment, net 94,433 18,692 113,125
Other assets 3,764 396 (253) (b) 3,805
(102) (c)
Goodwill and intangibles, net 21,417 14,907 16,467 (d) 52,791
Total Assets $216,662 $ 51,879 $ 15,812 $284,353
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Short-term borrowings $ 7,000 $ 0 $ $ 7,000
Current maturities of long-term debt 121 2,634 (2,604) (e) 151
Accounts payable 21,894 3,802 25,696
Book overdraft 3,812 0 3,812
Accrued expenses
Compensation 8,871 1,857 10,728
Other 10,834 1,298 12,132
Income taxes 897 41 (960) (f) (22)
Total current liabilities 53,429 9,632 (3,564) 59,497
Long-term debt 43,765 38,604 (35,712) (e) 102,728
56,000 (g)
71 (c)
Other long-term liabilities 8,495 240 8,735
Deferred income taxes 4,641 2,420 7,061
Shareholders' equity 106,332 983 (983) (h) 106,332
Total Liabilities and Shareholders' Equity $216,662 $ 51,879 $ 15,812 $284,353
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Pro Forma Consolidated Statement of Income (Unaudited)
For the Nine Months Ended March 31, 1996
<TABLE>
<CAPTION>
Historical Pro Forma
(In thousands, except per share data) Cadmus Lancaster Adjustments Pro Forma
<S> <C>
Net sales $244,870 $ 43,872 $ $288,742
Operating expenses
Cost of sales 188,469 34,202 (450) (i) 222,221
Selling and administrative 44,411 3,625 48,036
232,880 37,827 (450) 270,257
Operating income 11,990 6,045 450 18,485
Interest and other (income) expenses
Interest 3,772 2,954 2,805 (j) 7,050
(2,504)(k)
23 (l)
Other, net 141 853 69 (m) 1,063
3,913 3,807 393 8,113
Income before income taxes and
extraordinary item 8,077 2,238 57 10,372
Income taxes 3,071 992 22 (n) 4,085
Income before extraordinary item $ 5,006 $ 1,246 $ 35 $ 6,287
Earnings per share before extraordinary
item $ .69 $ .86
Average common shares outstanding 7,299 7,299
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Pro Forma Consolidated Statement of Income (Unaudited)
<TABLE>
<CAPTION>
For the Year Ended June 30, 1995
Historical Pro Forma
(In thousands, except per share data) Cadmus Lancaster* Adjustments Pro Forma
<S> <C>
Net sales $279,641 $ 52,882 $ $332,523
Operating expenses
Cost of sales 209,415 38,018 (600) (i) 246,833
Selling and administrative 52,172 6,592 58,764
261,587 44,610 (600) 305,597
Operating income 18,054 8,272 600 26,926
Interest and other (income) expenses
Interest 5,351 4,588 3,738 (j) 9,650
(4,057)(k)
30 (l)
Other, net 21 686 98 (m) 805
5,372 5,274 (191) 10,455
Income before income taxes and
extraordinary item 12,682 2,998 791 16,471
Income taxes 5,203 1,566 311 (n) 7,080
Income before extraordinary item $ 7,479 $ 1,432 $ 480 $ 9,391
Earnings per share before extraordinary
item $ 1.21 $ 1.52
Average common shares outstanding 6,195 6,195
</TABLE>
* For the year ended March 31, 1995
See Notes to Pro Forma Consolidated Financial Statements.
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
1. Basis of Reporting
The following unaudited pro forma consolidated balance sheet (the "Balance
Sheet") as of March 31, 1996, and the pro forma consolidated statements of
income for the nine months ended March 31, 1996 and for the year ended June 30,
1995 (the "Statements of Income"), give effect to the acquisition by Cadmus
Journal Services, Inc., a wholly-owned subsidiary of Cadmus Communications
Corporation ("Cadmus" or the "Company"), of all the outstanding stock of
Lancaster Press, Inc. ("Lancaster"), on May 21, 1996, for total consideration,
including transaction costs, of approximately $58.7 million. The acquisition has
been accounted for using the purchase method of accounting. Under the purchase
method of accounting, the assets and liabilities were recorded at their fair
value with the excess of the purchase price over the fair value of identifiable
net assets acquired recorded as goodwill.
The Balance Sheet presents the financial position of the Company and Lancaster
as of March 31, 1996, assuming that the acquisition occurred as of that date.
The Statements of Income have been prepared assuming the acquisition occurred as
of the beginning of the periods presented.
The unaudited pro forma consolidated financial statements are provided for
informational purposes only, and are not necessarily indicative of the past or
future results of operations or financial position of the Company that would
have occurred had the acquisition been consummated on the respective dates
assumed. The unaudited pro forma consolidated financial statements have been
prepared on the basis of preliminary estimates of the fair value of the assets
and liabilities acquired.
2. Pro Forma Consolidated Balance Sheet - Pro Forma Adjustments
The Pro Forma Consolidated Balance Sheet gives effect to the adjustments
described below. (a) To record accounts receivable at the estimated fair market
value. (b) To write-off Lancaster's pension asset in order to reflect the
pension plan accumulated benefit obligation
over the fair value of the pension plan assets.
(c) To write-off unamortized debt discount and deferred debt issuance costs
related to debt which was repaid in connection with the acquisition (see
Note e).
(d) To record $31.4 million of new goodwill related to the acquisition; and, to
write-off Lancaster's $14.9 million of historical goodwill.
(e) To reflect the repayment of debt owed to the sellers in accordance with the
purchase agreement.
(f) To record the tax benefit resulting from the transaction.
(g) To record borrowings used to fund the acquisition. The borrowings were
made under the Company's revolving credit facility with its banks. The
$56.0 million of borrowings used to acquire Lancaster consisted of a $30.0
million term loan with an effective interest rate of 7.2%, and $26.0
million of variable rate financing based on LIBOR.
(h) To eliminate the equity of Lancaster.
<PAGE>
3. Pro Forma Consolidated Statements of Income - Pro Forma Adjustments
The Pro Forma Consolidated Statements of Income for the nine months ended March
31, 1996 and for the year ended June 30, 1995, give effect to the adjustments
described below. (i) To record a reduction in depreciation expense based on the
estimated remaining useful lives of property, plant and equipment acquired.
(j) To record interest expense associated with acquisition debt.
(k) To reflect the reduction of interest expense (including the amortization of
debt discount and deferred debt issuance costs) for the repayment of debt
to the sellers in accordance with the purchase agreement.
(l) To reflect the amortization of deferred debt issuance costs associated with
the borrowings used to fund the acquisition.
(m) To record the amortization of the cost in excess of the fair market value
of the net assets acquired which was generated by applying the purchase
method of accounting for the acquisition. This includes the removal of
Lancaster's historical goodwill amortization of $.5 million and $.7 million
(for the nine months ended March 31, 1996 and year ended June 30, 1995,
respectively) and the addition of $.6 million and $.8 million (for the nine
months ended March 31, 1996 and year ended June 30, 1995, respectively) in
new goodwill amortization.
The amortization period for the new goodwill is forty years.
(n) To record income tax expense on the pro forma adjustments at a statutory
rate of 38.5% and 39.3% for the nine months ended March 31, 1996 and for
the year ended June 30, 1995, respectively.
<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 hereunto duly authorized August 5, 1996.
By: /s/ C. Stephenson Gillispie, Jr.
----------------------------------------------------
C. Stephenson Gillispie, Jr.
Chairman, President, and Chief Executive Officer
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
report on the financial statements of Lancaster Press, Inc., and Subsidiary,
included in this Form 8-K/A, into Cadmus Communications Corporation's previously
filed Registration Statement File No. 33-56653.
/s/ ARTHUR ANDERSEN LLP
Lancaster, Pa.
August 5, 1996
