<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
Form 10-Q
------------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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, 2000.
Class Outstanding at April 30, 2000
----- -----------------------------
Common Stock, $.50 Par Value 8,937,592
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
Part I. Financial Information
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- 3
March 31, 2000 (unaudited) and June 30, 1999
Condensed Consolidated Statements of Income (unaudited) -- 4
Three and Nine Months Ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows (unaudited) -- 5
Nine Months Ended March 31, 2000 and 1999
Condensed Consolidated Statements of Shareholders' Equity --
Nine Months Ended March 31, 2000 (unaudited) and year ended June 30, 1999 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
---------------- -----------
(Unaudited)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,456 $ 5,068
Accounts receivable, net 58,054 92,532
Inventories 28,477 30,586
Deferred income taxes 4,766 5,842
Prepaid expenses and other 4,606 6,230
---------------- --------------
Total current assets 97,359 140,258
Property, plant, and equipment (net of accumulated depreciation
of $119,503 at March 31, 2000 and $115,382 at June 30, 1999) 153,298 173,085
Goodwill and other intangibles, net 185,532 198,570
Other assets 10,720 11,933
---------------- --------------
TOTAL ASSETS $ 446,909 $ 523,846
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,600 $ --
Current maturities of long-term debt 10,115 6,637
Accounts payable 35,554 42,017
Accrued expenses 31,483 31,275
Restructuring reserve 3,870 --
---------------- --------------
Total current liabilities 84,622 79,929
Long-term debt, less current maturities 207,399 269,242
Other long-term liabilities 33,804 29,426
Deferred income taxes 4,626 8,716
Shareholders' equity:
Common stock ($.50 par value; authorized shares-16,000,000 shares; issued
and outstanding shares - 8,938,000 at
March 31, 2000 and 9,011,000 at June 30, 1999) 4,469 4,505
Capital in excess of par value 67,363 68,001
Retained earnings 45,002 64,403
Accumulated other comprehensive loss
(376) (376)
---------------- --------------
Total shareholders' equity 116,458 136,533
---------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 446,909 $ 523,846
================ ==============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C>
Net sales $ 121,706 $ 100,001 $ 377,859 $ 308,596
------------ ----------- ------------ ------------
Operating expenses:
Cost of sales 93,734 80,248 295,154 246,266
Selling and administrative 16,785 14,907 52,153 44,402
Net gain on divestitures -- (9,521) -- (9,521)
Restructuring and other charges 1,583 -- 34,144 --
------------ ----------- ------------ ------------
112,102 85,634 381,451 281,147
------------ ----------- ------------ ------------
Operating income (loss) 9,604 14,367 (3,592) 27,449
------------ ----------- ------------ ------------
Interest and other (income) expenses:
Interest 5,661 1,878 17,658 6,085
Securitization costs 465 -- 876 --
Other, net (300) 250 (697) (66)
------------ ----------- ------------ ------------
5,826 2,128 17,837 6,019
------------ ----------- ------------ ------------
Income (loss) before income taxes 3,778 12,239 (21,429) 21,430
Income tax expense (benefit) 1,929 4,712 (3,376) 8,251
------------ ----------- ------------ ------------
Net income (loss) $ 1,849 $ 7,527 $ (18,053) $ 13,179
========== ========== ============ ===========
Earnings per share - basic:
Net income (loss) per share $ .21 $ .96 $ (2.00) $ 1.67
=========== =========== =========== ===========
Weighted-average common shares
outstanding 8,995 7,835 9,008 7,872
=========== =========== =========== ===========
Earnings per share - diluted:
Net income (loss) per share $ .21 $ .94 $ (2.00) $ 1.63
=========== =========== =========== ===========
Weighted-average common shares
outstanding 8,997 7,968 9,008 8,073
=========== =========== =========== ===========
Cash dividends per common share $ .05 $ .05 $ .15 $.15
=========== =========== ========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------------------
2000 1999
------------ -----------
<S> <C>
Operating Activities
Net income (loss) $ (18,053) $ 13,179
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 19,538 14,326
Net gain on divestitures - (9,521)
Restructuring and other charges 34,144 -
Other, net 931 6,461
------------ -----------
36,560 24,445
------------ -----------
Changes in assets and liabilities, excluding debt and effects of acquisitions
and dispositions:
Accounts receivable, net 4,947 (4,523)
Inventories (192) (4,846)
Accounts payable and accrued expenses (4,662) (8,928)
Restructuring reserve (due to cash payments) (7,339) (1,236)
Other, net 1,250 (1,394)
------------ -----------
(5,996) (20,927)
------------ -----------
Net cash provided by operating activities 30,564 3,518
------------ -----------
Investing Activities
Purchases of property, plant, and equipment (12,515) (12,340)
Proceeds from sales of property, plant, and equipment 5,236 962
Payments for businesses acquired - (5,192)
Net proceeds from divested businesses 3,868 34,971
Other, net (2,586) (295)
------------ -----------
Net cash (used in) provided by investing activities (5,997) 18,106
------------ -----------
Financing Activities
Proceeds from short-term borrowings 3,600 10,070
Proceeds from sale of accounts receivable 27,900 -
Repayment of long-term revolving credit facility (55,350) (23,500)
Repayment of tax-exempt bonds (1,600) -
Repayment of long-term borrowings (1,415) (4,852)
Dividends paid (1,348) (1,183)
Repurchase and retirement of common stock - (3,864)
Issuance of stock - 1,986
Proceeds from exercise of stock options 34 -
------------ -----------
Net cash used in financing activities (28,179) (21,343)
------------ -----------
Increase (decrease) in cash and cash equivalents (3,612) 281
Cash and cash equivalents at beginning of period 5,068 -
------------ -----------
Cash and cash equivalents at end of period $ 1,456 $ 281
============ ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Accumulated
Capital in Other
Common Stock Excess of Retained Comprehensive
(in thousands) Shares Amount Par Value Earnings Income (Loss) Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at June 30, 1998 7,921 $ 3,961 $ 53,532 $ 52,323 $ -- $ 109,816
Net income -- -- -- 13,713 -- 13,713
Change in minimum pension liability -- -- -- -- (376) (376)
------ ----- ------
Comprehensive income 13,713 (376) 13,337
------ ----- ------
Cash dividends - $.20 per share -- -- -- (1,633) -- (1,633)
Repurchase and retirement
of common stock (201) (101) (3,763) -- -- (3,864)
Issuance of common stock for
business acquisitions 1,288 644 18,204 -- -- 18,848
Net shares issued upon exercise
of stock options 3 1 28 -- -- 29
- ----------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 9,011 4,505 68,001 64,403 (376) 136,533
(the following data is unaudited)
Net loss (and comprehensive loss) -- -- -- (18,053) -- (18,053)
Cash dividends - $.15 per share -- -- -- (1,348) -- (1,348)
Net shares retired (76) (38) (670) -- -- (708)
Net shares issued upon exercise
of stock options 3 2 32 -- -- 34
- ----------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 8,938 $ 4,469 $ 67,363 $ 45,002 $ (376) $ 116,458
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited consolidated financial statements of Cadmus
Communications Corporation (the "Company") 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, 1999.
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. The results of operations
for the period ended March 31, 2000, are not necessarily indicative of
results for the entire fiscal year.
Certain previously reported amounts have been reclassified to conform to
the current-year presentation.
2. Basic earnings per share is computed on the basis of weighted-average
common shares outstanding from the date of issue. Diluted earnings per
share is computed on the basis of weighted-average common shares
outstanding plus common shares contingently issuable upon exercise of
dilutive stock options. Incremental shares for dilutive stock options
(computed under the treasury stock method) were 2,000 and 133,000 for the
three months ended, and 0 and 201,000 for the nine months ended March 31,
2000 and 1999, respectively.
3. Components of net inventories at March 31, 2000 and June 30, 1999, were as
follows (in thousands):
March 31, June 30,
2000 1999
------------- ------------
(unaudited)
Raw materials and supplies $ 9,197 $ 9,389
Work in process 17,701 17,485
Finished goods 1,579 3,712
------------- ------------
$ 28,477 $ 30,586
============= ============
4. The Company is organized around two business groups: Professional
Communications, serving customers who publish information, and Marketing
Communications, serving customers who convey marketing messages.
Professional Communications, which serves both not-for-profit and
commercial publishers, is comprised of three product lines: STM journal
services, special interest magazines, and soft cover books/directories.
Professional Communications provides a full range of composition,
editorial, prepress, printing, warehousing and distribution services. In
addition, this group provides a full complement of digital products and
services, including website design and architecture, content management,
Internet and CD ROM-based electronic archiving, electronic peer review and
online publishing. Marketing Communications includes specialty packaging,
promotional printing, and catalog photography and design services.
The accounting policies for the groups are the same as those described in
Note 1 "Significant Accounting Policies" in the fiscal 1999 Annual Report
on Form 10-K. The Company primarily evaluates the performance of its
operating groups based on operating income, excluding amortization of
goodwill and restructuring charges. Intergroup sales for the third quarter
7
<PAGE>
and first nine months of fiscal 2000 are not significant. The Company
manages income taxes on a consolidated basis.
Summarized group data is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Professional Marketing
(In thousands) Communications Communications Total
- -------------------------------------------------------------------------------------------------
<S> <C>
Three Months Ended March 31, 2000:
Net sales $ 92,675 $ 29,031 $ 121,706
Operating income 13,899 780 14,679
Three Months Ended March 31, 1999:
Net sales $ 52,098 $ 47,903 $ 100,001
Sales between groups -- -- --
Operating income 7,457 (253) 7,204
Nine Months Ended March 31, 2000:
Net sales $ 271,069 $ 106,790 $ 377,859
Operating income 38,158 1,548 39,706
Nine Months Ended March 31, 1999:
Net sales $ 154,272 $ 155,144 $ 309,416
Sales between groups (820) -- (820)
Operating income 23,642 1,003 24,645
</TABLE>
A reconciliation of group data to consolidated data is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- -------------------------
(In thousands) 2000 1999 2000 1999
------------- ---------- ----------- -----------
<S> <C>
Earnings from operations:
Reportable group operating income $ 14,679 $ 7,204 $ 39,706 $ 24,645
Amortization of goodwill (1,291) (487) (3,966) (1,453)
Unallocated shared services and other
corporate expenses (2,201) (1,871) (5,188) (5,264)
Gain on divestitures, net -- 9,521 -- 9,521
Restructuring and other charges (1,583) -- (34,144) --
Interest expense, net (5,661) (1,878) (17,658) (6,085)
Securitization costs (465) -- (876) --
Other income, net 300 (250) 697 66
------------- ---------- ----------- -----------
Income (loss) before income taxes $ 3,778 $ 12,239 $ (21,429) $ 21,430
------------- ---------- ----------- -----------
</TABLE>
5. In October 1999, the Company announced organizational changes and a
restructuring plan intended to 1) effect additional planned synergies in
connection with its April 1999 acquisition of the Mack Printing Group
("Mack") and 2) focus the Company's resources on the professional
communications and specialty packaging markets. The restructuring plan has
the following broad components:
o closing the Atlanta-based Cadmus Point of Purchase ("POP") business
unit;
o implementing additional, planned synergies associated with the
integration of Mack;
o divesting the Company's Richmond- and Charlotte-based marketing
agencies;
o consolidating certain corporate functions and overhead.
As of March 31, 2000, the following restructuring actions had taken place:
o The POP business unit was closed in October, 1999.
o The workflows of two composition facilities in Lancaster, Pennsylvania
were substantially integrated.
8
<PAGE>
o The Richmond agency business was closed in July, 1999, and the
Company sold its Charlotte-based agency operation in September,
1999.
o The Company consolidated certain corporate functions, including
eliminating the overhead associated with its Marketing
Communications sector.
o The Company eliminated certain overhead within the Professional
Communications group.
The Company recorded first quarter restructuring and other charges totaling
$16.6 million ($14.1 million net of taxes). These charges included the
write-off of intangible assets related to the Company's POP business of
$11.1 million, the write-off of redundant manufacturing software resulting
from the integration of Mack of $6.2 million, and a net gain from the
closure and divestiture of the two marketing businesses of $0.7 million.
The Company recorded second quarter restructuring and other charges
totaling $16.0 million ($10.0 million net of taxes). These charges related
to the closure of the company's POP business, the consolidation of two
composition facilities, and the consolidation of certain corporate
functions and overhead. Total restructuring and other charges in the second
quarter consisted of asset write-downs of $7.9 million, involuntary
termination costs of $4.5 million, contract termination costs of $3.0
million, and other post closure shutdown costs of $0.6 million. Involuntary
termination costs relate to approximately 170 associates located primarily
at the POP business, two composition facilities, and the corporate
location.
The Company recorded third quarter restructuring charges totaling $1.6
million ($1.4 million net of taxes.) These charges related primarily to the
continued consolidation of duplicate facilities and overhead in the
Professional Communications group. Total restructuring and other charges in
the third quarter consisted of asset write-offs of $.6 million, contract
termination costs of $.2 million, and involuntary termination costs of $.8
million. Involuntary termination costs relate to approximately 50
associates located primarily within the Professional Communications group.
For the nine month period ended March 31, 2000, the company made severance
payments totaling $4 million to approximately 190 associates. The $3.9
million restructuring reserve at March 31, 2000 is comprised of the
following: $1.3 million for involuntary termination costs, $1.3 million for
contract termination costs, and $1.3 million for other post closure
shutdown costs. The Company expects all restructuring actions will be
completed within the next 9 months.
6. The Company entered into a receivables securitization program on October
26, 1999. Under the program, the Company entered into an agreement to
sell, on a revolving basis, certain of its accounts receivable to a
wholly-owned subsidiary, which entered into an agreement to transfer, on a
revolving basis, an undivided percentage ownership interest in a
designated pool of accounts receivable to an unrelated third party
purchaser up to a maximum of $35.0 million. These transactions are
accounted for as a sale of accounts receivable. At March 31, 2000, $27.9
million of accounts receivable had been sold and reflected as a reduction
of accounts receivable, the proceeds of which were used to repay a
corresponding amount of the Company's senior bank credit facility. The
fees arising from the securitization transaction of $0.5 million for the
three months ended March 31, 2000, and $0.9 million for the nine months
ended March 31, 2000, are reported as securitization costs on the
condensed consolidated statements of income for the three and nine months
ended March 31, 2000. These fees vary, based on the level of receivables
sold and commercial paper rates plus a margin, providing a lower effective
9
<PAGE>
rate than that available under the Company's senior bank credit facility.
The Company maintains an allowance for doubtful accounts based on the
expected collectibility of all accounts receivable, including receivables
sold.
7. On May 11, 2000, the Company announced that Mr. C. Stephenson Gillispie,
Jr. will retire as chairman, president and chief executive officer and as
a director effective June 30, 2000. Mr. Bruce V. Thomas, currently
executive vice president and chief operating officer, was elected to
replace Mr. Gillispie as president and chief executive officer. Mr.
Russell M. Robinson, II, was elected to serve as nonexecutive chairman.
In connection with the announced retirement, the Company has effected a
retirement agreement with Mr. Gillispie. The components total approximately
$3.0 million, with a present value of $2.2 million, and consist of the
following:
o Salary continuation payments, including benefits, totaling $1.4 million,
with a present value of $1.3 million ;
o Additional retirement benefits totaling $1.5 million, with a present
value of $0.9 million; and
o Certain health and welfare continuation benefits valued at $0.1 million.
In addition, under the terms of the agreement, all unexercised Cadmus
stock options held by Mr. Gillispie, which totaled 244,200 shares at March
31, 2000, were cancelled. The agreement also provides for ongoing
consultation by Mr. Gillispie and contains certain restrictive covenants
which prohibit Mr. Gillispie from competing, either directly or indirectly,
with the Company or becoming a party to any transaction which would effect
a "change in control" of the Company.
The Company expects to recognize a special charge in the fourth quarter of
fiscal 2000 in the amount of approximately $2.4 million related to the
items above.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Headquartered in Richmond, Virginia, Cadmus Communications Corporation provides
customers with integrated, end-to-end information and communications solutions.
The Company is organized around two primary business groups: Professional
Communications, serving customers who publish information, and Marketing
Communications, serving customers who convey marketing messages. Cadmus is the
largest provider of production services to scientific, technical and medical
journal publishers in the world, the fourth largest publications printer in
North America, and a leading national provider of specialty packaging products
and services.
In October 1999, the Company announced organizational changes and a
restructuring plan intended to 1) effect additional planned synergies in
connection with its April 1999 acquisition of the Mack Printing Group ("Mack")
and 2) focus the Company's resources on the professional communications and
specialty packaging markets. The restructuring plan has the following broad
components:
o closing the Atlanta-based Cadmus Point of Purchase ("POP") business
unit;
o implementing additional, planned synergies associated with the
integration of Mack;
o divesting the Company's Richmond- and Charlotte-based marketing
agencies; and
o consolidating certain corporate functions and overhead.
The company estimates that the annualized improvement in operating income from
its restructuring plan will exceed $6 million and that net funds liquidated will
result in approximately $1 million in annual interest savings from these
activities.
As of March 31, 2000, the following restructuring actions had taken place:
o The POP business unit was closed in October, 1999.
o The workflows of two composition facilities in Lancaster,
Pennsylvania were substantially integrated.
o The Richmond agency business was closed in July, 1999, and the
Company sold its Charlotte-based agency operation in September, 1999.
o The Company consolidated certain corporate functions, including
eliminating the overhead associated with its Marketing
Communications sector.
o The Company eliminated certain overhead within the Professional
Communications group.
The Company expects all restructuring actions will be completed over the next 9
months.
11
<PAGE>
RESULTS OF OPERATIONS
The following table presents the major components from the Condensed
Consolidated Statements of Income as a percent of net sales for the three and
nine months periods ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
2000 1999 2000 1999
---- ----- ---- ----
<S> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.0 80.2 78.1 79.8
----- ------- ----- ------
Gross profit 23.0 19.8 21.9 20.2
Selling and administrative expenses 13.8 14.9 13.8 14.4
Net gain on divestitures -- (9.5) -- (3.1)
Restructuring and other charges 1.3 -- 9.1 --
------ ------- ----- -------
Operating income (loss) 7.9 14.4 (1.0) 8.9
Interest expense 4.6 1.9 4.7 2.0
Securitization costs 0.4 -- 0.2 --
Other expenses (income), net (0.2) 0.3 (0.2) --
------- -------- ------- -------
Income (loss) before income taxes 3.1 12.2 (5.7) 6.9
Income tax expense (benefit) 1.6 4.7 (0.9) 2.6
------- -------- ------- -------
Net income (loss) 1.5% 7.5% (4.8)% 4.3%
======= ======== ======= =======
</TABLE>
Sales
Sales for the third quarter of fiscal 2000 were $121.7 million, a 22% increase
from sales of $100.0 million in the third quarter of fiscal 1999. Sales for the
first nine months of fiscal 2000 also increased 22% to $377.9 million. The
increase for the three and nine-month periods was driven by double-digit sales
growth from the specialty packaging business, as well as the incremental
contribution from the Mack acquisition. Adjusted for the acquisition of Mack,
and divested businesses, net sales increased 5% and 7% for the three and nine
months periods ended March 31, 2000, respectively.
Professional Communications sales rose 78% and 76% for the third quarter and
first nine months of fiscal 2000, respectively, compared to the prior year.
Adjusted for the acquisition of Mack, sales increased by 2% for the third
quarter of fiscal 2000 and declined 1% for the first nine months of fiscal 2000,
compared to the corresponding periods of fiscal 1999. The third quarter
improvement was due to increased new business development. The nine month
decrease was primarily due to a higher than normal customer attrition rate
experienced in the first half of the fiscal year.
In the Marketing Communications group, the Company's specialty packaging
business recorded a 26% increase in sales in the third quarter of fiscal 2000,
and a 37% increase in sales year to date over the prior year. These increases
were due primarily to expanded volume in both new and existing accounts. The
graphic solutions business experienced an 11% decline in sales for the third
quarter and a 2% increase in sales for the first nine months of fiscal 2000,
compared to the prior year. The decline in sales in the thirds quarter was due
to soft commercial printing market conditions in the third quarter and
competitive pressures. Divested and closed operations had no sales in the third
quarter and contributed $12.3 million in sales to the first nine months of
fiscal 2000, respectively, compared to $21.5 million and $78.6 million in the
corresponding periods of the prior year.
12
<PAGE>
Gross Profit
Gross profit increased to 23.0% and 21.9% of net sales for the third quarter and
first nine months of fiscal 2000, respectively, compared to 19.8% and 20.2% for
the same periods of fiscal 1999. The improvement in gross profit margins was
primarily due to savings resulting from the restructure actions, higher plant
utilization resulting from volume gains and improved plant efficiencies.
Selling and Administrative Expenses
Selling and administrative expenses, as a percentage of net sales, were 13.8%
for both the third quarter and first nine months of fiscal 2000 compared to
14.9% and 14.4% in the same periods of the prior year. This decline was
primarily attributable to the favorable impact resulting from the restructuring
actions involving the integration of Mack and divestiture of certain marketing
business. Partially offsetting these benefits was higher goodwill amortization
expense related to the Mack acquisition.
Restructuring and Other Charges
The Company recorded first quarter restructuring and other charges totaling
$16.6 million ($14.1 million net of taxes). These charges included the write-off
of intangible assets related to the Company's POP business of $11.1 million, the
write-off of redundant manufacturing software resulting from the integration of
Mack of $6.2 million, and a net gain from the closure and divestiture of the two
marketing businesses of $0.7 million.
The Company recorded second quarter restructuring and other charges totaling
$16.0 million ($10.0 million net of taxes). These charges related to the closure
of the company's POP business, the consolidation of two composition facilities,
and the consolidation of certain corporate functions and overhead. Total
restructuring and other charges in the second quarter consisted of asset
write-downs of $7.9 million, involuntary termination costs of $4.5 million,
contract termination costs of $3.0 million, and other post closure shutdown
costs of $0.6 million. Involuntary termination costs relate to approximately 170
associates located primarily at the POP business, two composition facilities,
and the corporate location. For the six month period ended December 31, 1999,
the company made severance payments totaling $2.1 million to approximately 150
associates. The $5.5 million restructuring reserve at December 31, 1999 is
comprised of the following: $2.4 million for involuntary termination costs, $1.7
million for contract termination costs and $1.4 million for other post closure
shutdown costs.
The Company recorded third quarter restructuring charges totaling $1.6 million
($1.4 million net of taxes.) These charges related primarily to the continued
consolidation of duplicate facilities in the Professional Communications group.
Total restructuring and other charges in the third quarter consisted of asset
write-offs of $.6 million, contract termination costs of $.2 million, and
involuntary termination costs of $.8 million. Involuntary termination costs
relate to approximately 50 associates located primarily in Cadmus Professional
Communications organization
The Company expects all restructuring actions will be completed over the next 9
months.
Operating Income
The Company recorded operating income of $9.6 million for the third quarter of
fiscal 2000 compared to $14.4 million in the corresponding period of fiscal
1999. The decline in operating income was due primarily to two factors: (1)
restructuring charges recorded in the third quarter of fiscal 2000 related to
the continued consolidation of duplicate facilities in the Professional
Communications group and (2) a net gain a $9.5 million recorded in the third
quarter of fiscal 1999 related to the divestiture of the Company's financial
communications and custom publishing product lines.
The Company recorded an operating loss of $3.6 million for the nine month period
ended March 31, 2000, compared to operating income of $27.4 million in the prior
year. This decline was due primarily to $34.1 million in restructuring charges
related to actions taken in the first three quarters of fiscal 2000 and a gain
of $9.5 million recorded in fiscal 1999 related to the divestiture of the
Company's financial communications and custom publishing product lines and the
13
<PAGE>
inclusion of Mack results. Excluding restructuring and other charges, operating
income rose to 9.2% and 8.1% of net sales for the third quarter and first nine
months of fiscal 2000, respectively, up from 4.8% and 5.8% of net sales in the
corresponding periods of the prior year, primarily due to the inclusion of Mack
results in fiscal 2000.
Interest and Other Expenses and Income Taxes
Interest expense increased $3.8 million and $11.6 million for the third quarter
and first nine months of fiscal 2000 over the same periods in fiscal 1999. The
increase in interest expense was due primarily to higher debt levels resulting
from the acquisition of Mack, along with higher interest rates on the Company's
senior credit facility and senior subordinated notes issued in conjunction with
the Mack acquisition. The Company reduced debt by $26.9 million in the first
nine months of fiscal 2000, exclusive of debt reduction due to the
securitization program. The effects of lower debt levels on interest expense
were offset by higher short-term interest rates in fiscal 2000.
As a result of its implementation of a receivables securitization program with
its lead bank, the Company incurred $0.5 million in securitization costs in the
third quarter of fiscal 2000 and $0.9 million in securitization fees year to
date. These fees vary based on commercial paper rates plus a margin, providing a
lower effective rate than that available under the Company's senior bank credit
facility. The Company anticipates that Mack's receivables will be brought into
the receivables securitization program during the fourth quarter of fiscal 2000.
The Company recognized income tax expense at an effective tax rate of 51.1% for
the third quarter and income tax benefits at an effective tax rate of 5.7% for
the first nine months of fiscal 2000, respectively, compared to an income tax
rate of 38.5% in the comparable periods of fiscal 1999. The reduction in the
effective tax rate for the first nine months of fiscal 2000 is largely
attributable to the non-deductibility of restructuring charges associated with
the write-off of certain intangible assets.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash provided by operating activities for the first nine months of fiscal
2000 totaled $30.6 million, compared to $3.5 million for the first nine months
of fiscal 1999. This $27.1 million improvement was attributable to increased
operating earnings (before depreciation, amortization and restructuring
charges), including the impact of reporting Mack's results in the first nine
months of fiscal 2000, and improved working capital management. Changes in
working capital during the first nine months required $6.0 million in cash,
primarily attributable to cash outlays related to the Company's restructuring
plan. The $18.3 million improvement in working capital cash flow, excluding
restructuring cash requirements, resulted from 1) improved collections on
accounts receivable, 2) improved inventory and payables management, and 3) lower
sales and management incentives paid in the first half of fiscal 2000.
Investing Activities
Net cash used in investing activities was $6.0 million for the first nine months
of fiscal 2000, as compared to net cash provided by investing activities of
$18.1 million in the prior year. Net proceeds from divested businesses totaled
$3.9 million in the third quarter of fiscal 2000, from the sale of the
Charlotte-based direct marketing agency in fiscal 2000, compared to $35.0
million from the sale of the financial communications business in fiscal 1999.
Proceeds from the sale of property, plant and equipment totaled $5.2 million in
the current year, and related primarily to the sale of a manufacturing facility
and related equipment in the point of purchase business. Capital expenditures
remained consistent with the prior year at $12.5 million, and included
investments primarily in prepress and manufacturing equipment, and new business
and manufacturing systems. The Company estimates that capital expenditures for
fiscal 2000 will approximate $20 million. In the first nine months of fiscal
2000, the Company made additional payments of $2.6 million in connection with
14
<PAGE>
its acquisition of Mack in April, 1999. Net cash used in investing activities in
fiscal 1999 included $5.2 million of cash paid for the purchase of the assets of
Beacon Press, Incorporated and the stock of Dynamic Diagrams.
Financing Activities
Net cash used in financing activities was $28.2 million for the first nine
months of fiscal 2000 compared to $21.3 million in fiscal 1999. Short-term
borrowings and cash provided by operations were used to fund working capital
requirements, to pay down $26.9 million in debt (exclusive of the securitization
program), and to fund $1.3 million in dividend payments.
On October 26, 1999, the Company entered into a receivables securitization
program. Under the program, the Company entered into an agreement to sell, on a
revolving basis, certain of its accounts receivable to a wholly-owned
subsidiary, which entered into an agreement to transfer, on a revolving basis,
an undivided percentage ownership interest in a designated pool of accounts
receivable to an unrelated third party purchaser up to a maximum of $35.0
million. These transactions are accounted for as a sale of accounts receivable.
At March 31, 2000, $27.9 million of accounts receivable had been sold and
reflected as a reduction of accounts receivable, the proceeds of which were used
to repay a corresponding amount of the term loan facility under the senior bank
credit facility.
For the nine months ended March 31, 1999, the Company decreased its borrowings
by $18.3 million. This decline in total debt was attributable to the net
proceeds from the sale of the financial communications business, which were used
to reduce debt in the third quarter of fiscal 1999. Additional uses of funds
included the repurchase of common stock for $3.9 million, and dividend payments
of $1.2 million.
Total debt at March 31, 2000, was $221.1 million, down $54.8 million from $275.9
million at June 30, 1999. The Company's debt to capital ratio was 65.4% at March
31, 2000, down from 66.9% at June 30, 1999, primarily due to the reduction in
overall debt levels offset by the impact on equity resulting from restructuring
charges recognized in the first nine months of fiscal 2000.
The primary cash requirements of the Company are for debt service, capital
expenditures, and working capital. The primary sources of liquidity will be cash
flow provided by operations and unused capacity under its senior credit and
receivables securitization facilities. The Company believes that these sources
will provide sufficient liquidity and capital resources to meet its anticipated
debt service requirements, capital expenditures, and working capital
requirements. The future operating performance and the ability to service or
refinance the Company's debt depends on the ability to implement the business
strategy and on general economic, financial, competitive, legislative,
regulatory and other factors, many of which are beyond the control of the
Company.
The previous discussions contain forward-looking information, as defined by the
Private Securities Litigation Reform Act of 1995, and, as such, are subject to
certain risks and uncertainties that could cause actual results to differ
materially. Potential risks and uncertainties include but are not limited to:
(1) the effective execution of the restructuring plan and the successful
integration of recent acquisitions, (2) continuing competitive pricing in the
markets in which the Company competes, (3) the gain or loss of significant
customers or the decrease in demand from existing customers, (4) the ability of
the Company to continue to obtain improved efficiencies and lower overall
production costs, (5) changes in the Company's product sales mix, (6) the
performance of new management and leadership teams in the Company and its
divisions, (7) the impact of industry consolidation among key customers, (8) the
ability of the Company to operate profitably and effectively with higher levels
of indebtedness, and (9) the ability to retain key employees and managers in
light of lower-than-planned incentives and benefits
15
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes to the information concerning the Company's
"Quantitative and Qualitative Disclosures about Market Risk" as previously
reported in the Company's Report on Form 10-K for the year ended June 30, 1999.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K:
On February 3, 2000, the Company filed a Form 8-K, which
included the press release dated February 2, 2000 regarding
fiscal 2000 second quarter financial results, as well as a
copy of the prepared remarks made on a conference call to
analysts on the same date.
On February 29, 2000, the Company filed a Form 8-K, which
included an amendment to the Company's shareholder rights
agreement dated as of February 15, 1999 (the "Rights
Agreement"). Pursuant to the amendment, the definition of
"Acquiring Person" contained in the Rights Agreement has been
amended to prevent the Rights Agreement from being triggered
in certain specified circumstances or inadvertently.
16
<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 15, 2000
/s/ C. Stephenson Gillispie, Jr.
--------------------------------
C. Stephenson Gillispie, Jr.
Chairman, President, and Chief Executive Officer
Date: May 15, 2000
/s/ David E. Bosher
---------------------------------
David E. Bosher
Sr. Vice President, Chief Financial Officer, and Treasurer
17
<TABLE> <S> <C>
<PAGE>
<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> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,456
<SECURITIES> 0
<RECEIVABLES> 60,752
<ALLOWANCES> 2,968
<INVENTORY> 28,477
<CURRENT-ASSETS> 97,359
<PP&E> 272,801
<DEPRECIATION> 119,503
<TOTAL-ASSETS> 446,909
<CURRENT-LIABILITIES> 84,622
<BONDS> 207,399
0
0
<COMMON> 4,469
<OTHER-SE> 111,989
<TOTAL-LIABILITY-AND-EQUITY> 446,909
<SALES> 377,859
<TOTAL-REVENUES> 377,859
<CGS> 295,154
<TOTAL-COSTS> 399,288
<OTHER-EXPENSES> (697)
<LOSS-PROVISION> 1,067
<INTEREST-EXPENSE> 17,658
<INCOME-PRETAX> (21,429)
<INCOME-TAX> (3,376)
<INCOME-CONTINUING> (18,053)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,053)
<EPS-BASIC> $(2.00)
<EPS-DILUTED> $(2.00)
</TABLE>
