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, 1995
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
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CADMUS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1274108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6620 West Broad Street, Suite 500
Richmond, Virginia 23230
(Address of principal executive offices including zip code)
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Registrant's telephone number, including area code:
(804) 287-5680
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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, 1995.
Class Outstanding at October 31, 1995
Common Stock, $.50 Par Value 6,066,875
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
September 30, 1995 and June 30, 1995
Consolidated Statements of Income -- 4
Three Month Periods Ended
September 30, 1995 and 1994
Consolidated Statements of Cash Flows -- 5
Three Months Ended September 30, 1995 and 1994
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 6. Exhibits and Reports on Form 8-K 10
2
PART I. Financial Information
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30, June 30,
1995 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 129 $ 226
Accounts receivable, net 63,463 57,204
Inventories 22,166 16,308
Deferred income taxes 1,092 1,092
Prepaid expenses and other 1,517 1,489
-------- --------
Total current assets 88,367 76,319
Property, plant, and equipment (net
of accumulated depreciation
of $79,684 at September 30, 1995
and $76,789 at June 30, 1995) 86,243 84,570
Other assets 2,797 2,400
Goodwill and intangibles, net 8,405 8,281
-------- --------
Total Assets $185,812 $171,570
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 15,500 $ 3,775
Current maturities of long-term debt 2,321 2,381
Accounts payable 21,003 18,818
Accrued expenses:
Compensation 7,426 10,905
Restructuring charge 23 120
Other 9,313 7,907
Income taxes 684
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Total current liabilities 56,270 43,906
Long-term debt 53,913 53,961
Other long-term liabilities 7,760 7,180
Deferred income taxes 4,641 4,641
Shareholders' equity:
Common stock ($.50 par value;
authorized-16,000 shares; issued
and outstanding shares-6,045 at
September 30, 1995 and 6,030 at
June 30, 1995) 3,022 3,015
Capital in excess of par value 12,565 12,448
Retained earnings 47,641 46,419
-------- --------
Total shareholders' equity 63,228 61,882
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Total Liabilities and Shareholders' Equity $185,812 $171,570
======== ========
See accompanying Notes to Consolidated Financial Statements.
3
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
1995 1994
------ -----
Net sales $74,673 $ 60,383
------- --------
Operating expenses
Cost of sales 56,803 46,631
Selling and administrative 13,918 10,997
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Operating income 3,952 2,755
Interest and other (income) expenses
Interest 1,422 1,267
Other 57 (119)
------- --------
Income before income taxes 2,473 1,607
Income taxes 957 633
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Net income $ 1,516 $ 974
======= ========
Net income per share $ .24 $ .16
======= ========
Average number of common shares outstanding 6,326 6,190
======= ========
Cash dividends per common share $ .05 $ .05
======= ========
See accompanying Notes to Consolidated Financial Statements.
4
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
September 30,
1995 1994
------ -----
Operating Activities
Net income $ 1,516 $ 974
Adjustments to reconcile net income to
net cash provided by
(used in) operating activities:
Depreciation and amortization 3,140 3,050
Other, net 502 (85)
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5,158 3,939
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Changes in operating assets and liabilities,
excluding effects of acquisitions:
Accounts receivable (6,259) 747
Inventories (5,858) (2,451)
Accounts payable, accrued expenses, and
income taxes 667 (1,487)
Other, net (277) (561)
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(11,727) (3,752)
Net cash provided by (used in) operating activities (6,569) 187
------- -------
Investing Activities
Purchases of property, plant, and equipment (4,562) (3,719)
Proceeds from sale of property and equipment 11 2,811
Cash paid for businesses acquired (236) (720)
Other, net (180) (17)
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Net cash used in investing activities (4,967) (1,645)
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Financing Activities
Proceeds from short-term borrowings 16,725
Repayment of short-term borrowings (5,000)
Repayment of long-term borrowings (108) (20)
Dividends paid (302) (300)
Proceeds from exercise of stock options 124 185
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Net cash provided by (used in) financing activities 11,439 (135)
------ ------
Decrease in cash and cash equivalents (97) (1,593)
Cash and cash equivalents at beginning of period 226 3,855
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Cash and cash equivalents at end of period $ 129 $ 2,262
======= ======
See accompanying Notes to Consolidated Financial Statements.
5
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim financial statements are unaudited. In the opinion of
management, they reflect all adjustments (which consist only of those of a
normal recurring nature) necessary for a fair presentation of results for
the periods indicated. The results of operations for any interim period are
not necessarily indicative of results for the full year. These financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's annual report for the year ended
June 30, 1995.
2. Net income per common share is computed based upon the weighted average
number of shares outstanding during the periods presented. Shares under
stock options are treated as common stock equivalents for purposes of
computing primary and fully diluted net income per share.
3. Inventories are valued at the lower of cost or market, principally using the
last-in, first-out (LIFO) method (68.5% as of September 30, 1995 and 70.5%
as of June 30, 1995). The first-in, first-out (FIFO) method is used to value
the remaining inventories. The components of inventories were as follows (in
thousands):
September 30, June 30,
1995 1995
Raw materials and supplies $ 7,619 $ 6,044
Work in process:
Materials 4,292 3,270
Other manufacturing costs 7,941 5,315
Finished goods 2,314 1,679
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$22,166 $16,308
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4. On November 1, 1995, the Company acquired substantially all of the assets
and assumed certain liabilities of The Software Factory, Inc. (the
"Software Factory") for approximately $13.5 million. The Software Factory,
a provider of software packaging and media duplication services, has annual
sales of approximately $11.0 million. The purchase price consisted of $2.0
million value of Cadmus common stock and $11.5 million cash payments. The
cash payments consisted of a $5.5 million payment and a $0.5 million escrow
deposit made at closing, and a $0.5 million holdback, with the remaining
$5.0 million evidenced by a note payable to the Software Factory on January
2, 1996. The funds used to acquire the Software Factory will be provided
from the proceeds of the issuance of 1.7 million shares of common stock
(see Note 5).
5. On November 7, 1995, the Company completed the issuance of an additional
1.7 million shares common stock through a public offering, resulting in net
proceeds (after deducting issuance costs) of $38.7 million. The Company
will use the net proceeds to (i) repay $11.2 million of 9.76% Senior Notes
due June 2000, plus a $1.0 million prepayment penalty, (ii) fund the $11.8
million cash portion of the acquisition cost of the assets of the Software
Factory and PeachWeb Corp., and (iii) repay approximately $8.0 million of
borrowings to fund seasonal working capital needs with an interest rate of
approximately 6.4% which matures at February 1997. Payment of the
prepayment penalty is expected to produce an after-tax charge to net income
of approximately $0.6 million in the second quarter.
6
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales in the first quarter of fiscal 1996 increased 23.7% to $74.7 million
compared to $60.4 million for the same period last year. Operating income rose
to $4.0 million in 1996 from $2.8 million in 1995. Net income was $1.5 million,
or $0.24 per share, in 1996, which represents an increase of 50.0% over net
income of $1.0 million, or $0.16 per share, in fiscal 1995.
The following table presents the major components from the Consolidated
Statements of Income as a percent of sales for the three months ended September
30, 1995 and 1994:
Three Months Ended
September 30,
1995 1994
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Net sales 100.0% 100.0%
Cost of sales 76.1 77.2
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Gross profit 23.9 22.8
Selling and administrative 18.6 18.2
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Operating income 5.3 4.6
Interest expense 1.9 2.1
Other (income) expenses 0.1 (0.2)
----- -----
Income before income taxes 3.3 2.7
Income taxes 1.3 1.1
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Net income 2.0% 1.6%
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Sales
The Company groups sales into three business groups: printing, marketing and
publishing. The table below displays net sales for each of these groups
expressed as a percent of net sales:
Three Months Ended
September 30,
1995 1994
------ -----
Printing 74.0% 74.4%
Marketing 19.8 17.4
Publishing 6.2 8.2
----- -----
100.0% 100.0%
===== =====
For the first quarter of 1996, printing and marketing sales rose 19.4% and
36.1%, respectively, while publishing sales declined 8.8%, when compared to the
same period of last year. The increase in sales was broad-based, with nine of
the Company's eleven product lines recording improvement. Adjusted for the
impact of higher paper prices, sales increased 17.5%.
7
RESULTS OF OPERATIONS (continued)
Printing Sales
The growth in printing sales for the first quarter of fiscal 1996 over fiscal
1995 was driven predominantly by strong performance from the financial printing,
specialty packaging, and magazine product lines. Financial printing sales rose
155.8% due to strong equity and debt new-issue markets and increased merger
activity. Specialty packaging sales increased 69.5% due to growth from existing
customers. Finally, magazine sales increased 31.1% due primarily to the addition
of several new accounts. In addition, research journal sales rose 7.6%. These
increases in printing sales were partially offset by a lower promotional
printing sales.
Marketing Sales
The increase in first quarter marketing revenues was driven primarily by a 37.9%
increase in point-of-purchase revenues and a 24.9% increase in direct marketing
sales. Point-of-purchase revenue increases were the result of both growth of
existing accounts and the addition of several new accounts. The growth in direct
marketing revenues resulted primarily from the acquisition of Ronald James
Direct, Inc. in the fourth quarter of fiscal 1995. As selling synergies of this
acquisition are achieved, combined with the acquisition of The Mowry Company
during the first quarter of fiscal 1996, expansion of direct marketing revenues
are expected to continue.
In addition, Cadmus Interactive, which was formed at the end of first quarter
fiscal 1995, contributed 12.9% of the overall increase in marketing revenues.
This multimedia product line, which provides state-of-the-art computer graphics
available today, has attracted several Fortune 1000 customers to deliver a wide
variety of presentations geared toward both marketing impact and educational
programs. The Company has further expanded its capabilities in this area with
the acquisition of PeachWeb Corp., a developer of Internet web sites, in October
1995.
Publishing Sales
The decline in first quarter publishing revenues was attributable to lower
consumer publishing sales, which offset gains in custom publishing. The decrease
in consumer publishing sales resulted from the timing of a trade show and the
absence of a Tuff Stuff special edition, which were included in fiscal 1995
first quarter revenues. Custom publishing gains were the result of record
advertising sales.
Costs and Other Expenses
Cost of sales decreased to 76.1% of sales for the first quarter of fiscal 1996
compared to 77.2% of sales for the same period last year. However, selling and
administrative expenses increased for the first quarter of fiscal 1996 to 18.6%
of sales compared to 18.2% of sales in fiscal 1995. Both the cost of sales and
the selling and administrative expense ratios were positively impacted by the
savings generated from reductions in the workforce related to the restructuring
of the Company's composition and prepress operations which began during the
first quarter of fiscal 1995. In addition, savings generated from procurement
activities with rebates and freight consolidation contributed to the overall
decrease in the cost of sales ratio. However, restructuring savings in selling
and administrative expenses were offset by costs associated with establishing
the team to service the General Electric contract, launching the project to
unify Cadmus, establishing and operating a New York office for the financial
communications product line, and adding a human resources and an information
technologies executive.
Other (income) expenses as a percent of sales shifted from income of 0.2% of
sales for fiscal 1995 first quarter to expense of 0.1% of sales for the current
year first quarter. This shift was due to the sale of the Company's fifty
percent ownership in Central Florida Press, L.C. during the third quarter of
fiscal 1995. During the first quarter of fiscal 1995, equity income from this
partnership totaled $0.2 million.
The effective income tax rate changed from 39.4% for the first quarter of fiscal
1995 to 38.7% for the same period of fiscal 1996, a decrease attributable to
both higher levels of pretax income and a decrease in the overall effective
state tax rate.
8
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter of fiscal 1996, net cash used by operating activities
totaled $6.6 million, which represents a $6.8 million change from the $0.2
million provided by operating activities in the prior year first quarter. This
change was driven primarily by increases in accounts receivable and inventories.
The increase in accounts receivable was due to both the timing of higher sales
and a slowdown in collection cycles. September accounted for approximately half
of the increase in sales from the prior year first quarter. Slowdown in
collections occurred primarily in Fortune 1000 companies and does not reflect a
deterioration of the quality of the Company's receivable portfolio. The Company
is undertaking efforts to enhance its billing processes, which are expected to
improve collections. The increase in inventories was driven primarily by a $3.6
million increase in work in process which typically turns around within a
quarter. In addition, finished goods and raw materials inventories were up $0.7
million and $1.6 million, respectively. Increases in all components of
inventories were consistent with projected sales volume.
Net cash used in investing activities totaled $5.0 million for the first quarter
of fiscal 1996 compared to $1.6 million for the first quarter of fiscal 1995.
The increase was due primarily to the $2.8 million proceeds received from the
fiscal 1995 sale and leaseback of property located in Tucker, Georgia.
For fiscal 1996 first quarter, net cash provided by financing activities totaled
$11.4 million, which represents an $11.5 million change from the $0.1 million
used in financing activities for fiscal 1995 first quarter. The change from
prior year first quarter was due primarily to net proceeds from short-term
borrowings of $11.7 million which were used to finance seasonal working capital
needs. These short-term borrowings will be repaid from proceeds of the
additional 1.7 million shares of common stock which was issued through a public
offering on November 7, 1995.
Capital investment in property, plant and equipment totaled $4.6 million during
the first three months of fiscal 1996. Significant projects included in this
amount were deposits of approximately $1.0 million for presses for both the
Richmond and Baltimore manufacturing facilities, an automated imposing
platemaker for the magazine product line in Richmond, a platesetter for the
Easton manufacturing facility, and a die cutter and gluer for the Charlotte
manufacturing facility. For fiscal 1996, the Company projects that capital
spending will total approximately $21.0 million.
Total debt at September 30, 1995 was $71.7 million, representing an $11.6
million increase from the $60.1 million at June 30, 1995. The rise in debt
levels was due entirely to short-term borrowings used to fund seasonal working
capital needs. The Company's debt-to-capital ratio at September 30, 1995 was
53.2% compared to 49.3% at June 30, 1995. At September 30, 1995, borrowings
under the Company's $25 million revolving credit agreements totaled $15.5
million, leaving an unused balance of $9.5 million.
On November 7, 1995, the Company completed the issuance of an additional 1.7
million shares common stock through a public offering, resulting in net proceeds
(after deducting issuance costs) of $38.7 million. The Company will use the net
proceeds to (i) repay $11.2 million of 9.76% Senior Notes due June 2000, plus a
$1.0 million prepayment penalty, (ii) fund the $11.8 million cash portion of the
acquisition cost of the assets of the Software Factory and PeachWeb Corp., and
(iii) repay approximately $8.0 million of borrowings to fund seasonal working
capital needs with an interest rate of approximately 6.4% which matures at
February 1997. Payment of the prepayment penalty is expected to produce an
after-tax charge to net income of approximately $0.6 million in the second
quarter.
9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
Description
Exhibit 11 Statement Regarding Computation of Net Income
per Share
Exhibit 27 Financial Data Schedules
b. Reports on Form 8-K: There were no reports on Form 8-K filed for
the three months ended September 30, 1995.
10
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 8, 1995
/s/ C. Stephenson Gillispie, Jr.
C. Stephenson Gillispie, Jr.
Chairman, President, and
Chief Executive Officer
Date: November 8, 1995
/s/ Michael Dinkins
Michael Dinkins
Vice President and Chief
Financial Officer