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 March 31, 1998
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 April 30, 1998.
Class Outstanding at April 30, 1998
----- -----------------------------
Common Stock, $.50 Par Value 7,913,601
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
Page Number
-----------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
March 31, 1998 and June 30, 1997
Consolidated Statements of Income -- 4
Three and Nine Month Periods Ended
March 31, 1998 and 1997
Consolidated Statements of Cash Flows -- 5
Nine Months Ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II. Other Information
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
2
<PAGE>
PART I. Financial Information
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------------ ------------
(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 219 $ 184
Accounts receivable, net 68,129 69,093
Inventories 23,982 19,427
Deferred income taxes 6,542 8,269
Prepaid expenses and other 3,859 3,969
------------------ ------------
Total current assets 102,731 100,942
Property, plant, and equipment (net of accumulated depreciation
of $104,500 at March 31, 1998 and $99,558 at June 30, 1997) 130,336 118,621
Goodwill and other intangibles, net 41,694 42,572
Other assets 3,769 4,015
------------------ ------------
Total Assets $ 278,530 $ 266,150
================== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 5,095 $ 1,650
Current maturities of long-term debt 6,126 5,017
Accounts payable 40,770 29,593
Accrued expenses 16,006 15,674
Restructuring reserve 3,167 7,612
------------------ ------------
Total current liabilities 71,164 59,546
Long-term debt 82,420 89,452
Other long-term liabilities 7,904 7,811
Deferred income taxes 9,647 9,464
Shareholders' equity:
Common stock ($.50 par value; authorized shares-16,000,000; issued and
outstanding shares- 7,867,000 at March 31, 1998 and 7,830,000
at June 30, 1997) 3,933 3,915
Capital in excess of par value 52,368 51,923
Retained earnings 51,094 44,039
------------------ ------------
Total shareholders' equity 107,395 99,877
------------------ ------------
Total Liabilities and Shareholders' Equity $ 278,530 $ 266,150
================== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C>
Net sales $ 101,234 $ 97,018 $ 289,644 $ 288,172
Operating expenses:
Cost of sales 77,512 75,350 223,706 224,224
Selling and administrative 16,207 15,928 45,933 47,204
Restructuring gain
--- --- --- (250)
--------- --------- --------- --------
93,719 91,278 269,639 271,178
Operating income 7,515 5,740 20,005 16,994
Interest and other expenses:
Interest 1,771 1,822 5,564 5,991
Other, net 419 644 1,060 1,427
--------- --------- --------- ---------
2,190 2,466 6,624 7,418
Income before income taxes 5,325 3,274 13,381 9,576
Income taxes 2,050 1,260 5,152 3,686
--------- --------- --------- ---------
Net income $ 3,275 $ 2,014 $ 8,229 $ 5,890
========= ========= ========= =========
Net income per share, assuming dilution $ .40 $ .25 $ 1.01 $ .73
========= ========= ========= =========
Weighted average common shares
outstanding 8,176 8,050 8,140 8,045
========= ========= ========= =========
Cash dividends per common share $ .05 $ .05 $ .15 $ .15
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------------------
1998 1997
----------- -----------
<S> <C>
Operating Activities
Net income $ 8,229 $ 5,890
Adjustments to reconcile net income to net cash
provided by operating activities:
Restructuring gain --- (250)
Depreciation and amortization 13,608 13,762
Other, net 3,152 2,940
----------- -----------
24,989 22,342
----------- -----------
Changes in assets and liabilities, excluding debt and effects of acquisitions
and dispositions:
Accounts receivable, net 655 6,464
Inventories (4,555) 536
Accounts payable and accrued expenses 11,511 (2,635)
Restructure reserve (due to cash payments) (3,648) ---
Other current assets and liabilities 115 ---
Other long-term liabilities (due to pension plan payments) (1,148) (2,837)
Other, net (668) 763
----------- -----------
2,262 2,291
----------- -----------
Net cash provided by operating activities 27,251 24,633
----------- -----------
Investing Activities
Proceeds from sale of consumer publishing division --- 6,500
Purchases of property, plant, and equipment (28,582) (18,022)
Proceeds from sales of property and equipment 4,557 2,227
Other, net --- (670)
----------- -----------
Net cash used in investing activities (24,025) (9,965)
----------- -----------
Financing Activities
Proceeds from short-term borrowings, net 3,445 1,622
Proceeds from long-term revolving credit facility --- 18,000
Repayment of long-term revolving credit facility (2,500) ---
Proceeds from long-term borrowings --- 40,415
Repayment of long-term borrowings (3,423) (71,707)
Dividends paid (1,176) (1,188)
Repurchase and retirement of common stock (118) ---
Proceeds from exercise of stock options 581 ---
Other, net --- 132
----------- -----------
Net cash used in financing activities (3,191) (12,726)
----------- -----------
Increase in cash and cash equivalents 35 1,942
Cash and cash equivalents at beginning of period 184 1,141
----------- -----------
Cash and cash equivalents at end of period $ 219 $ 3,083
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<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.
2. During the second quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which establishes
new standards for computing and presenting earnings per share. The effect of
this adoption was immaterial.
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 diluted net income per share.
3. Inventories are valued at the lower of cost or market. Inventory costs have
been determined by the first-in, first-out method for 83% and 85% of inventories
at March 31, 1998 and at June 30, 1997, respectively. 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 March 31, 1998, 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 March 31, 1998
and June 30, 1997 were as follows (in thousands):
March 31, June 30,
1998 1997
--------- ---------
Raw materials and supplies $5,885 $5,341
Work in process:
Materials 6,701 2,838
Other manufacturing costs 10,147 9,451
Finished goods 2,495 3,043
LIFO reserve (1,246) (1,246)
---------- ---------
Inventories $23,982 $19,427
========== =======
6
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is an integrated communications company offering products and
services in two broad areas: professional communications and 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 organizations. Cadmus Marketing Communications was formed in 1997
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 analyses in
this report will include reference 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 and nine months
ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 76.6 77.7 77.2 77.8
------ ------ ------ ------
Gross profit 23.4 22.3 22.8 22.2
Selling and administrative expenses 16.0 16.4 15.9 16.4
Restructuring gain --- --- --- (0.1)
------ ------ ------ -----
Operating income 7.4 5.9 6.9 5.9
Interest expense 1.7 1.9 1.9 2.1
Other expenses, net 0.4 0.6 0.4 0.5
------- ------- ------- -----
Income before income taxes 5.3 3.4 4.6 3.3
Income taxes 2.0 1.3 1.8 1.3
------- ------- ------- ------
Net Income 3.3% 2.1% 2.8% 2.0%
======= ======= ======= =======
</TABLE>
7
<PAGE>
Sales
Sales for the third quarter of fiscal 1998 increased 4% to $101.2 million from
$97.0 million recorded in the third quarter of fiscal 1997. The fiscal 1997
results include sales from several businesses that were discontinued in the
restructuring actions taken by the Company during the fourth quarter of fiscal
1997. Adjusted for discontinued business operations, sales increased 10%. The
impact of changes in paper prices was immaterial for third quarter sales.
Sales for the first nine months of fiscal 1998 were $289.6 million, compared to
$288.2 million for the first nine months of fiscal 1997. However, excluding the
effect of fiscal 1997 divestitures, plant closings and the impact of changing
paper prices, sales increased 7%.
Professional Communication sector sales for the third quarter of fiscal 1998
increased 1% over those sales recorded for the same period of fiscal 1997. The
marginal increase in sales is attributed to higher sales of trade
association/educational institution magazines. Professional Communication sector
sales for the first nine months of fiscal 1998 were flat compared to the same
period of fiscal 1997. However, adjusted for the impact of changing paper
prices, Professional Communication sector sales increased 1% for the first nine
months of fiscal 1998 compared to the same period of fiscal 1997.
Marketing Communication sector sales, adjusted for the fiscal 1997 business
closings, increased 23% and 17% for the third quarter and first nine months of
fiscal 1998, respectively, compared to the same periods of fiscal 1997.
Financial communications sales increased 31% and 41% for the third quarter and
first nine months of fiscal 1998, respectively, due primarily to growth in
mutual fund services and full service banking relationships and continued
strength from capital market transactions. Sales for the packaging and
promotional product line increased 19% and 14% for the third quarter and first
nine months of fiscal 1998 due to growth from existing customers. Tactical
marketing continued its strong performance reporting sales increases of 18% for
the third quarter of fiscal 1998 and 28% for the first nine months of fiscal
1998. The increases in third quarter tactical marketing sales were driven
primarily by an increase of 52% in direct marketing agency fees due to new
account development and growth from existing customers.
Operating Expenses
Cost of sales decreased slightly to 76.6% and 77.2% of net sales for the third
quarter and first nine months of fiscal 1998, respectively, compared to 77.7%
and 77.8% for the same periods of fiscal 1997. This improvement was primarily
attributable to the benefits resulting from restructuring actions taken by the
Company in the fourth quarter of fiscal 1997.
Selling and administrative expenses as a percent of sales, declined slightly to
16.0% and 15.9% in the third quarter and first nine months of fiscal 1998,
respectively, from 16.4% for both the third quarter and the first nine months of
fiscal 1997. This improvement was driven by efficiencies resulting from the
restructuring actions.
During fiscal 1997, the Company recognized a $0.3 million gain resulting from a
restructuring of the former Publishing Group. The $0.3 million gain consisted of
a $0.7 million gain from the sale of the consumer publishing operations, offset
by a $0.4 million charge related to the strategic repositioning of the custom
publishing product line into the Marketing Communications Group.
Interest and Other Expenses and Income Taxes
Interest expense decreased marginally for the third quarter of fiscal 1998, and
$0.4 million for the first nine months of fiscal 1998 compared to the same
periods of last year. The reduction in interest expense was due primarily to
lower debt levels.
The effective tax rate was 38.5% for the first nine months of both fiscal 1998
and fiscal 1997.
8
<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 for investments in property, plant, and equipment,
working capital, and acquisitions.
Net cash provided by operating activities totaled $27.2 million for the first
nine months of fiscal 1998, representing a $2.6 million increase from $24.6
million provided by operating activities in the first nine months of the prior
year. The improvement was primarily attributable to an increase in net income of
$2.6 million over the prior year, a further reduction of $1.9 million in the
Company's working capital investment in 1998, and a $1.7 million decline in
contributions to the Company's pension plan in 1998. Working capital increases
in 1998 resulted primarily from seasonal increases in paper inventories and
higher work-in-process levels, offset by increased payables. A significant
portion of the increase in payables was due to a deferred payment arrangement
related to the expansion of the Company's Charlotte manufacturing facility.
These cash flow improvements were partially offset by $3.6 million in cash
outflows related to the Company's restructure plan.
Net cash used in investing activities totaled $24.0 million for the first nine
months of fiscal 1998, as compared to $9.9 million in the comparable prior year
period. Included in the fiscal 1998 spending were investments in new presses,
new business and manufacturing systems, and the purchase of the Charlotte
manufacturing facility. Cash used in investing activities for the first nine
months of fiscal 1997 included the use of $18.0 million to fund fiscal 1997
capital expenditures, offset by proceeds of $6.5 million resulting from the sale
of the Company's consumer publishing division in September 1996.
Net cash used in financing activities was $3.2 million for the first nine months
of fiscal 1998. During fiscal 1998, the Company repaid $3.5 million against
long-term borrowings. Dividend payments were $1.2 million, and remained
substantially unchanged from the prior year. Net cash used in financing
activities was $12.7 million for first nine months of fiscal 1997.
Total debt at March 31, 1998, was $93.6 million, which represented a decrease of
$2.5 million from June 30, 1997. The Company's debt-to-capital ratio improved
to 46.6% from 49.0% at June 30, 1997.
9
<PAGE>
PART II. Other Information
Item 5. Other Information
On April 1, 1998, the Company issued a press release, a copy of which is
filled as Exhibit 99 hereto, announcing the acquisition of Germersheim,
Inc. as of April 1, 1998.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Exhibit Description
------- -----------
Exhibit 27 Financial Data Schedule
Exhibit 99 Press Release announcing acquisition of Germersheim, Inc.
b. Reports on Form 8-K:
On May 5, 1998, the Company filed a Form 8-K, which included the press release
regarding fiscal 1998 third quarter financial results, as well as a copy of the
prepared remarks made on a conference call to analysts on April 23, 1998.
11
<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: May 14, 1998
/s/ C. Stephenson Gillispie, Jr.
----------------------------------------
C. Stephenson Gillispie, Jr.
Chairman, President, and Chief Executive Officer
Date: May 14, 1998
/s/ Bruce V. Thomas
-------------------------------------------
Bruce V. Thomas
Senior Vice President and Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CADMUS
COMMUNICATIONS CORPORATION'S MARCH 31, 1998 CONSOLIDATED BALANCE SHEETS
AND CONSOLIDATED STATEMENTS OF INCOME INCLUDED IN THE COMPANY'S FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 219
<SECURITIES> 0
<RECEIVABLES> 70,591
<ALLOWANCES> 2,462
<INVENTORY> 23,982
<CURRENT-ASSETS> 102,731
<PP&E> 234,836
<DEPRECIATION> 104,500
<TOTAL-ASSETS> 278,530
<CURRENT-LIABILITIES> 71,164
<BONDS> 82,420
0
0
<COMMON> 3,933
<OTHER-SE> 103,462
<TOTAL-LIABILITY-AND-EQUITY> 278,530
<SALES> 289,644
<TOTAL-REVENUES> 289,644
<CGS> 223,706
<TOTAL-COSTS> 269,639
<OTHER-EXPENSES> 1,060
<LOSS-PROVISION> 1,053
<INTEREST-EXPENSE> 5,564
<INCOME-PRETAX> 13,381
<INCOME-TAX> 5,152
<INCOME-CONTINUING> 8,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,229
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
</TABLE>
Exhibit 99
NEWS RELEASE
Contact: David E. Bosher, Vice President and Treasurer (analysts)
(804) 287-5685
Teri Schrettenbrunner, Director of Public Relations (media)
(804) 287-6260
Cadmus Announces Acquisition of Germersheim
RICHMOND, VA - April 1, 1998 - Cadmus Communications Corp. (NASDAQ NMS:
CDMS) announced today that it has acquired Germersheim, Inc., an Atlanta-based
national point-of-purchase (POP) marketing services provider with annual sales
of approximately $24 million. Germersheim and Cadmus Marketing Services, Cadmus'
existing POP operation, will be merged, creating the leading POP provider in the
southeast with annual sales of approximately $47 million. The terms of the
transaction were not disclosed. The acquisition is expected to be accretive to
earnings in the fourth quarter of fiscal 1998.
C. Stephenson Gillispie, Jr., Cadmus' chairman and chief executive
officer, said, "This transaction is an important next step in the execution of
our strategy to offer unmatched, fully-integrated services. Cadmus is an
effective consolidator in select, niche markets. This transaction follows the
pattern of our Waverly and Lancaster acquisitions through which we established a
world-leadership position in the research journal market."
"We also use acquisitions to enhance and expand our end-to-end
capabilities," Gillispie added. "Germersheim has unique structural design and
creative capabilities that complement well our existing competencies and product
offerings. This acquisition solidifies our position in the powerful POP market,
particularly as it relates to meeting the needs of quick service restaurant and
beverage clients."
Herbert Haralson, founder of Germersheim, Inc., said, "We are excited
to team up with Cadmus and to secure a leading position in the large,
highly-fragmented POP market. We will achieve national competitive advantage by
integrating the full array of Cadmus services designed to offer clients unique
solutions to their marketing challenges. We see enormous opportunities for
continued growth." Haralson will assume the role of president of the new Cadmus
POP business group. Robert Madean, former chief operating officer of Cadmus
Marketing Services, will serve as chief operating officer of the new group.
<PAGE>
In conjunction with the acquisition, Cadmus intends to take a one-time,
pre-tax charge in the fourth quarter of fiscal 1998 in the range of $2.75
million to $3.75 million related to integrating the two operations and
consolidating several facilities.
Germersheim is a large-format POP provider best known for its beverage
industry displays. Together, Germersheim and Cadmus will offer creative
promotional concepts and designs, a full range of production capabilities for
merchandising of all sizes and shapes, and sophisticated distribution and
fulfillment services that include maintaining an active database for POP
requirements for each clients' location.
According to the Point of Purchase Advertising Institute (POPAI), about
$12.7 billion was spent in 1996 on advertising displays, signage and in-store
media. The growth rate in spending for this category was 6% over the prior year.
The largest component of spending was attributable to the restaurant, fast food,
and beverage industries, which amounted to $1.1 billion or 8% of the market.
Headquartered in Richmond, Virginia, Cadmus Communications Corp.
provides customers with integrated information and communications solutions. Its
services include corporate identity marketing, advertising, custom publishing,
direct marketing, financial communication, interactive media, point-of-purchase
and promotional marketing, specialty packaging, software duplication, catalog
production, magazine production and general commercial printing. In addition,
Cadmus is the world's largest producer of scientific, technical and medical
journals.
-2-
