SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
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(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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 240
Richmond, Virginia 23230
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code:
(804) 287-5680
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 1997.
Class Outstanding at October 31, 1997
----- -------------------------------
Common Stock, $.50 Par Value 7,831,906
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
Page Number
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
September 30, 1997 and June 30, 1997
Consolidated Statements of Income -- 4
Three Month Periods Ended
September 30, 1997 and 1996
Consolidated Statements of Cash Flows -- 5
Three Months Ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART I. Financial Information
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
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(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 184
Accounts receivable, net 70,662 69,093
Inventories 21,521 19,427
Deferred income taxes 7,116 8,269
Prepaid expenses and other 3,965 3,969
--------- ---------
Total current assets 103,264 100,942
Property, plant, and equipment (net of accumulated depreciation
of $100,975 at September 30, 1997 and $99,558 at June 30, 1997) 119,101 118,621
Other assets 4,076 4,015
Goodwill, net 42,187 42,572
--------- ---------
Total Assets $ 268,628 $ 266,150
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 5,080 $ 1,650
Current maturities of long-term debt 4,893 5,017
Accounts payable 31,088 29,593
Accrued expenses 17,318 15,674
Restructuring reserve 5,392 7,612
--------- ---------
Total current liabilities 63,771 59,546
Long-term debt 87,033 89,452
Other long-term liabilities 7,209 7,811
Deferred income taxes 9,111 9,464
Shareholders' equity:
Common stock ($.50 par value; authorized shares-16,000,000 shares; issued
and outstanding shares-7,832,000 at September 30, 1997 and 7,830,000 at
June 30, 1997) 3,916 3,915
Capital in excess of par value 51,904 51,923
Retained earnings 45,684 44,039
--------- ---------
Total shareholders' equity 101,504 99,877
--------- ---------
Total Liabilities and Shareholders' Equity $ 268,628 $ 266,150
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
------------------------------
1997 1996
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Net sales $ 92,362 $ 93,922
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Operating expenses:
Cost of sales 71,814 72,707
Selling and administrative 14,858 16,101
Restructuring gain -- (250)
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86,672 88,558
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Operating income 5,690 5,364
Interest and other expenses:
Interest 1,933 2,076
Other, net 392 511
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2,325 2,587
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Income before income taxes 3,365 2,777
Income taxes 1,329 1,083
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Net income $ 2,036 $ 1,694
========== =========
Net income per share $ .25 $ .21
========== =========
Weighted average common shares
outstanding 8,109 8,024
========== =========
Cash dividends per common share $ .05 $ .05
========== =========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------
1997 1996
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<S> <C>
Operating Activities
Net income $ 2,036 $ 1,694
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Restructuring gain -- (250)
Depreciation and amortization 4,480 4,621
Other, net 1,259 781
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7,775 6,846
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Changes in assets and liabilities, excluding debt
and effects of acquisitions
and dispositions:
Accounts receivable, net (1,569) 4,541
Inventories (2,094) (3,006)
Accounts payable and accrued expenses 2,781 (1,829)
Restructure reserve (due to cash payments) (2,220) --
Payment to fund pension plan (1,148) (2,837)
Other, net (108) 374
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(4,358) (2,757)
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Net cash provided by operating activities 3,417 4,089
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Investing Activities
Proceeds from sale of consumer publishing division -- 6,500
Purchases of property, plant, and equipment (4,074) (4,557)
Proceeds from sales of property, plant, and equipment -- 1,206
Other, net (4) (947)
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Net cash (used in) provided by investing activities (4,078) 2,202
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Financing Activities
Proceeds from (repayment of) short-term borrowings 3,430 (3,033)
Repayment of long-term borrowings (43) (464)
Repayment of long term revolving credit facility (2,500) (1,500)
Dividends paid (391) (395)
Repurchase and retirement of common stock (118) --
Proceeds from exercise of stock options 99 --
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Net cash provided by (used in) financing activities 477 (5,392)
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(Decrease) increase in cash and cash equivalents (184) 899
Cash and cash equivalents at beginning of period 184 1,141
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Cash and cash equivalents at end of period $ -- $ 2,040
============ ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting, and with applicable quarterly reporting
regulations of the Securities and Exchange Commission. They do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and, accordingly,
should be read in conjunction with the consolidated financial statements and
related footnotes included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1997.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of interim
financial information have been included.
Net income per common share is computed based upon the weighted average
number of shares outstanding during the periods presented. Shares issuable
upon exercise of currently exercisable stock options are treated as common
stock equivalents for purposes of computing primary and fully diluted net
income per share. The Company will adopt the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share," during the
second quarter of fiscal 1998.
2. Inventories are valued at the lower of cost or market. Inventory costs have
been determined by the first-in, first-out method for 85% of inventories at
September 30, 1997 and June 30, 1997. Costs for the remaining inventories
have been determined by the last-in, first-out (LIFO) method. Because the
inventory determination under the LIFO method can only be made at year-end
based on the current inventory levels and costs, interim LIFO determination,
including that at September 30, 1997, must necessarily be based on
management's estimates of expected year-end inventory levels and costs. Since
future estimates of inventory levels and costs are subject to many forces
beyond the control of management, interim financial results are subject to
final year-end LIFO inventory amounts. Components of net inventories at
September 30, 1997 and June 30, 1997 were as follows (in thousands):
September 30, June 30,
1997 1997
Raw materials and supplies $ 5,626 $ 5,341
Work in process:
Materials 4,022 2,838
Other manufacturing costs 10,091 9,451
Finished goods 3,028 3,043
LIFO reserve (1,246) (1,246)
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Inventories $21,521 $19,427
======= =======
3. Results of operations for the quarter ended September 30, 1996 include
recognition of a $0.3 million gain resulting from a restructuring of the
Company's publishing operations. The restructuring gain included income of
$0.7 million related to the September 30, 1996 sale of its consumer
publishing division, for total consideration of $6.5 million, which was
offset by charges of $0.4 million related to the restructuring and
repositioning of Cadmus custom publishing into the Company's Marketing Group.
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company`s operational structure consists of Cadmus Professional
Communications and Cadmus Marketing Communications. Cadmus Professional
Communications, previously known as the Periodicals group, includes the journal
services product line which specializes in journals, magazines and related
communications targeted to trade and professional audiences. Cadmus Marketing
Communications was formed by merging the former Graphics Communications and
Marketing groups. Cadmus Marketing Communications consists of the financial
communications, specialty packaging and promotional printing, point of purchase,
print outsourcing and tactical marketing communications product lines. All
discussions and analysis in this report will include reference only to the
Professional Communications and Marketing Communications sectors.
The Company's previous organizational structure consisted of the Periodicals,
Graphic Communications, Marketing and Publishing groups. Effective with the sale
of Tuff Stuff in the first quarter of fiscal 1997, the Publishing Group ceased
to exist and custom publishing was realigned into the marketing group.
RESULTS OF OPERATIONS
The following table presents the major components from the Consolidated
Statements of Income as a percent of net sales for the three months ended
September 30, 1997 and 1996:
Three Months Ended
September 30,
------------------
1997 1996
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Net sales 100.0% 100.0%
Cost of sales 77.8 77.4
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Gross profit 22.2 22.6
Selling and administrative expenses 16.1 17.1
Restructuring gain - (0.2)
------ ------
Operating income 6.1 5.7
Interest expense 2.1 2.2
Other expenses, net 0.4 0.5
------ ------
Income before income taxes 3.6 3.0
Income taxes 1.4 1.2
------ ------
Net income 2.2% 1.8%
====== ======
<PAGE>
RESULTS OF OPERATIONS (continued)
Sales
Sales for the first quarter of fiscal 1998 were $92.4 million, compared to sales
of $93.9 million recorded in the first quarter of fiscal 1997. The 2% decline in
sales is primarily due to the closing of several operations during the fourth
quarter of fiscal 1997 in connection with restructuring actions taken by the
Company. Excluding the effect of fiscal 1997 divestitures and plant closings,
sa1es from continuing operations actually increased 5% for the first quarter of
fiscal 1998 compared to the same period in fiscal 1997. Excluding the effect of
divestitures, plant closings and lower paper prices, sales increased 8%.
Sales for the Professional Communications sector were $50.2 million in the first
quarter of fiscal 1998 compared to $49.7 million in the first quarter of fiscal
1997, representing an increase of 1%. After adjusting for the effect of lower
paper prices, sales increased by 6% for this sector. Journal services sales
increased 5% (up approximately 8% after adjusting for the impact of lower paper
prices). The increase in sales for journal services sales was primarily due to
growth from existing customers. Magazine sales declined by 14% as the Company
continued to right-size magazine services and its related customer base.
Sales for the Marketing Communications sector were $43.7 million in the first
quarter of fiscal 1998 compared to $42.7 million in the first quarter of fiscal
1997, representing an increase of 2%. Adjusting for the impact of discontinued
operations, sales for this sector increased by approximately 13%. Financial
communications sales increased 46% due to continued growth in mutual fund
services and full service banking relationships, combined with strong capital
markets activity. Specialty packaging and promotional printing sales declined by
2% as a result of the expected disruption in operations related to its
relocation to a new 180,000 square-foot facility in Charlotte and due to lower
media duplication revenues. Sales for the point of purchase operations declined
by 28% due to the loss of a major customer and lower sales to fast-food clients.
Print outsourcing sales were 8% higher in the first quarter compared to first
quarter of fiscal 1997 due to the timing of certain one-time projects, as well
as expanded services for existing customers. Tactical marketing sales showed
strong growth in the quarter with an overall increase in sales of 48%. The
increase in tactical marketing sales was driven by a 38% increase in agency fees
for the Company's direct marketing operations, resulting from new customer
relationships and growth in existing customers and a 21% increase in catalog
design and photography agency fees due to increased billings to existing
customers.
Operating Expenses
Cost of sales for the first quarter decreased from $72.7 million in fiscal 1997
to $71.8 million in fiscal 1998, representing a decline of 1%. The slight
decline in cost of sales was primarily the result of lower paper prices.
Selling and administrative expenses for the first quarter decreased from $16.1
million in fiscal 1997 to $14.9 million in fiscal 1998. This improvement was
driven by efficiencies resulting from restructuring actions taken by the Company
in the fourth quarter of fiscal 1997 and continued cost control measures.
In the first quarter of fiscal 1997 the Company recorded a $0.3 million pretax
gain to restructure the Publishing Group operations as it was determined that
the consumer publishing business was no longer consistent with the Company's
strategy to become an integrated, solutions-based communications and marketing
company. Therefore, the consumer publishing division was sold and the Company
recorded a $0.7 million gain from this sale. The proceeds from the sale of this
division were used to pay down debt. In addition, as part of this restructuring,
the Company recorded a $0.4 million charge related to the strategic
repositioning of the custom publishing product line into the Marketing Group.
The charge included costs of $0.2 million for termination benefits for five
associates and $0.2 million for costs related to repositioning the client base
to align with the Marketing Group strategies.
Interest and Other Expenses and Income Taxes
Interest expense in the first quarter of fiscal 1998 was $1.9 million compared
to $2.1 million for the same period of fiscal 1997, representing a decrease of
7%. The decrease in interest expense was primarily the result of lower debt
levels for the Company. Total debt as of the end of the first quarter of fiscal
1998 was $97.0 million compared to $105.5 million as of the end of the first
quarter of fiscal 1997.
The effective income tax rate increased from 39.0% in the first quarter of
fiscal 1997 to 39.5% in the first quarter of fiscal 1998 due primarily to an
overall increase in the state effective tax rate.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company has the financial resources and access to
capital necessary to fund internal growth and acquisitions. The Company's major
demands on capital are investments in property, plant, and equipment, working
capital, and acquisitions.
Net cash provided by operating activities totaled $3.4 million for the first
quarter of fiscal 1998, representing a $.7 decrease from $4.1 million provided
by operating activities in the prior year first quarter. The decrease was
primarily attributable to $2.2 million in cash outflows related to the Company's
restructure plan announced in the fourth quarter of fiscal 1997, offset by a
$1.7 million improvement, from the comparable prior year period, in the required
cash contribution to the Company's pension plan. Working capital demands rose
slightly due to a seasonal increase in inventory levels.
Net cash used in investing activities totaled $4.1 million for the first quarter
of fiscal 1998 and included investments in new presses, the expansion of the
Charlotte manufacturing facility, and new business and manufacturing systems.
Net cash provided by investing activities totaled $2.2 million for the first
quarter of fiscal 1997, as $4.6 million in capital expenditures was offset by
$6.5 million in proceeds received from the sale of the Company's consumer
publishing division in September 1996, and $1.2 million in proceeds received
from the sale of property, plant and equipment.
Net cash provided by financing activities was $.5 million for the first quarter
of fiscal 1998 compared to $5.4 million used in the same period of the prior
year. The Company increased borrowing by $.9 million in the first quarter of
fiscal 1998 versus decreasing borrowing by $5.0 million in the first quarter of
1997. This change reflects the Company's use of lines of credit to fund working
capital requirements in fiscal 1998 versus its use of the proceeds from the
September 1996 sale of the consumer publishing division noted above to pay down
debt in fiscal 1997. Dividend payments remained unchanged from the first quarter
of fiscal 1997 at $.4 million. The Company also repurchased 8,200 shares of its
common stock during the first quarter of fiscal 1998.
Total debt at September 30, 1997, was $97.0 million, up from $96.1 million at
June 30, 1997. The Company's debt to equity ratio improved marginally to 48.9%
from 49.0% at June 30, 1997.
<PAGE>
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit Description
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K:
On July 31, 1997, the Company filed a Form 8-K, which included the press release
regarding fiscal 1997 fourth quarter and year-end financial results, as well as
a copy of the prepared remarks made on a conference call to analysts on the same
date.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CADMUS COMMUNICATIONS CORPORATION
Date: November 14, 1997
/s/ C. Stephenson Gillispie, Jr.
--------------------------------
C. Stephenson Gillispie, Jr.
Chairman, President, and
Chief Executive Officer
Date: November 14, 1997
/s/ Bruce V. Thomas
-------------------
Bruce V. Thomas
Senior Vice President and
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CADMUS
COMMUNICATIONS CORPORATION'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED
STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 73,069
<ALLOWANCES> 2,407
<INVENTORY> 21,521
<CURRENT-ASSETS> 103,264
<PP&E> 220,076
<DEPRECIATION> 100,975
<TOTAL-ASSETS> 268,628
<CURRENT-LIABILITIES> 63,771
<BONDS> 87,033
0
0
<COMMON> 3,916
<OTHER-SE> 97,588
<TOTAL-LIABILITY-AND-EQUITY> 268,628
<SALES> 92,362
<TOTAL-REVENUES> 92,362
<CGS> 71,814
<TOTAL-COSTS> 86,672
<OTHER-EXPENSES> 392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,933
<INCOME-PRETAX> 3,365
<INCOME-TAX> 1,329
<INCOME-CONTINUING> 2,036
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,036
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>