EXHIBIT 99.1
CADMUS COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The accompanying unaudited pro forma consolidated financial data is based upon
the historical consolidated financial statements for Cadmus Communications
Corporation and Melham Holdings, Inc., adjusted to give effect to (1) our
acquisition of Melham Holdings, Inc. that is being accounted for as a purchase
and is described in Item 2 of this Form 8-K/A, (2) our sale of Cadmus Financial
Communications and Cadmus Custom Publishing, and (3) the refinancing of our
former senior credit facility, as if they had occurred at the beginning of the
earliest period presented with respect to the summary unaudited pro forma
consolidated statements of income and as of March 31, 1999, to the extent the
transactions had not occurred by such date (excluding the divestitures of Cadmus
Financial Communications and Cadmus Custom Publishing, which occurred in March
and February, 1999, respectively) with respect to the summary unaudited pro
forma consolidated balance sheet data. The unaudited pro forma consolidated
statements of income are not necessarily indicative of the results that would
have been achieved if those transactions had occurred on the date indicated. The
pro forma adjustments give effect to available information and assumptions that
management believes are reasonable. The pro forma adjustments to reflect the
purchase accounting for the acquisition of Melham Holdings, Inc. are tentative
and subject to change. The unaudited pro forma consolidated financial
information should be read in conjunction with historical consolidated financial
statements of Cadmus Communications Corporation and the notes thereto and the
historical consolidated financial statements of Melham Holdings, Inc. and the
notes thereto, included elsewhere herein.
On March 1, 1999, we sold our financial printing business, Cadmus Financial
Communications, to R.R. Donnelley & Sons Company for approximately $35.0 million
in cash. Under the terms of our agreement with Donnelley, we sold substantially
all of the assets associated with our financial printing business, including our
sales offices in New York, Baltimore, Richmond, Charlotte and Raleigh, as well
as our mutual fund fulfillment center in Charlotte. Also on March 1, 1999, we
sold our custom publishing business, Cadmus Custom Publishing, to Pohly &
Partners, Inc., a Boston-based relationship marketing company. Contributions to
EBITDA and net sales from our custom publishing operations were immaterial. The
sale of both of these businesses was driven by our continued focus on our core
markets, which we believe offer the best opportunity for growth, profitability
and market leadership.
On April 1, 1999, we entered into a new five-year, $200 million senior credit
facility, consisting of a $145 million revolving credit facility and a $55
million term loan facility. The proceeds of the loans under the senior credit
facility have been and will be used (1) to refinance indebtedness under our
former senior credit facility and certain other indebtedness, (2) to finance a
portion of the purchase price of the Melham Holdings, Inc. acquisition and
related transaction expenses, and (3) for general corporate purposes, including
working capital.
The senior credit facility is jointly and severally guaranteed by each of our
present and future significant subsidiaries and is secured by a pledge of all of
the capital stock of our present and future significant subsidiaries. The
revolving credit facility will terminate on March 31, 2004. The term loan
facility will be amortized in quarterly installments beginning June 30, 1999 and
will mature on March 31, 2004.
The borrowings under the senior credit facility bear interest for an initial
period of approximately seven and one-half months at either (1) the Base Rate
plus 0.50%, or (2) LIBOR plus 2.25%. Thereafter, interest rates on borrowings
under the senior credit facility will be equal to (1) the Base Rate, or (2)
LIBOR plus, in either case, a margin determined by reference to our total debt
to EBITDA ratio as it exists from time to time. Upon the occurrence of certain
events, including, without limitation, a default or an event of default under
the senior credit facility, the interest rates applicable to borrowings under
the senior credit facility will or may be increased as provided in the senior
credit facility documents.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
MELHAM
DOLLARS IN THOUSANDS ACQUISITION AND ADJUSTED
CADMUS MELHAM (1) REFINANCING PRO PRO FORMA
FORMA
ADJUSTMENTS
------ ---------- --------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 281 $ 70 $ -- $ 351
Accounts receivable, net 65,454 22,198 -- 87,652
Inventories 27,978 9,623 -- 37,601
Deferred income taxes 5,210 1,576 -- 6,786
Prepaid expenses and other 3,892 1,402 1,251(3) 6,545
--------- --------- ------------ --------
Total current assets 102,815 34,869 1,251 138,935
--------- --------- ------------ --------
Property, plant and equipment, net 126,907 50,001 (4,566)(1) 172,342
Goodwill and other intangibles, net 50,646 32,518 121,775(1) 204,939
Other assets 4,861 4,517 5,504(2) 12,274
(2,608)(1)
--------- --------- ------------ --------
Total assets $285,229 $121,905 $ 121,356 $528,490
========= ========= ============ ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 12,170 $ -- $ (12,170)(5) $ --
Current maturities of long-term debt 6,089 6,216 (6,216)(4) 5,089
(1,000)(6)
Accounts payable 35,577 6,374 -- 41,951
Accrued expenses 20,202 13,014 1,794(1) 35,010
Restructuring reserve 1,136 -- -- 1,136
--------- --------- ------------ --------
Total current liabilities 75,174 25,604 (17,592) 83,186
Long-term debt, less current 65,214 95,719 (95,719)(4) 269,552
maturities 204,338 (5)
Other long-term liabilities 10,510 23,077 (8,753)(1) 24,834
Deferred income taxes 13,788 -- -- 13,788
Shareholders' equity:
Common stock 3,923 -- 580(1) 4,503
Preferred stock -- 6,424 (6,424)(1) --
Capital in excess of par value 52,292 3,983 14,022(1) 70,297
Retained earnings 64,328 (32,902) 30,904(1)(3) 62,330
--------- ---------- ------------ --------
Total shareholders' equity 120,543 (22,495) 39,082 137,130
--------- ---------- ------------ --------
Total liabilities and shareholders'
equity $285,229 $121,905 $121,356 $528,490
========= ========== ============ ========
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) Represents the preliminary adjustments to record the acquisition of Melham
which is accounted for as a purchase.
The purchase price for pro forma purposes is as follows:
1,200,000 shares of Cadmus common stock $ 18,585
Cash 66,000
Junior seller notes 6,415
Bridge loan 110,000
Estimated transaction costs 1,794
--------
$202,794
========
The purchase price has been allocated for pro forma purposes as follows:
Working Capital $ 15,481
Long-term, assets, excluding goodwill 47,344
Goodwill 154,293
Long-term liabilities (14,324)
--------
$202,794
========
The above allocation of acquisition costs is preliminary and may change
upon final determination of the fair value of the assets acquired and
liabilities assumed.
(2) Represents adjustments to deferred loan costs related to the refinancing
of the former senior credit facility and the elimination of the Melham
long-term debt that was repaid in conjunction with the acquisition.
(3) Includes a payment to terminate certain interest rate swaps associated
with the former credit facility and to write-off deferred costs associated
with repaid debt.
(4) Represents an adjustment to eliminate the current and long-term debt of
Melham that was repaid in conjunction with the acquisition.
(5) Represents debt incurred to partially finance the acquisition of Melham.
(6) Represents $1 million decrease in current maturities of long-term debt due
to different maturities for senior credit facility.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1999
-------------------------------------------------------------------------------------------------------
Adjust for
DOLLARS IN Cadmus Adjusted Melham Port City Adjusted Pro Forma
THOUSANDS, EXCEPT Cadmus Divestiture Cadmus Holdings, Inc. Acquisition(1) Melham Adjustments(3) Pro Forma
PER SHARE DATA ------ ----------- -------- -------------- -------------- -------- -------------- ---------
STATEMENT OF INCOME
DATA:
Net sales $308,596 $(31,188) $277,408 $112,378 $5,588 $117,966 $ (97) $395,277
Cost of sales 246,994 (24,296) 222,698 86,002 4,110 90,112 (4,009)(4)(5) 308,801
Selling and
administrative
expenses 43,674 (6,741) 36,933 15,070 1,060(2) 16,130 1,732(5)(6) 54,795
Net gain on
divestiture (9,521) 9,521 - - - - - -
-------- --------- ------ ------- ------ ------- --------- --------
Operating income 27,449 (9,672) 17,777 11,306 418 11,724 2,180 31,681
Interest expense 6,085 (1,453) 4,632 7,841 554(2) 8,395 4,280(7) 17,307
Other, net (66) - (66) (5) (4) (9) (22) (97)
-------- --------- ------ -------- ----- ------ --------- --------
Income (loss)
before income
taxes 21,430 (8,219) 13,211 3,470 (132) 3,338 (2,078) 14,471
Provision for
income taxes 8,251 (3,164) 5,087 1,468 (53) 1,415 66(8) 6,568
-------- --------- ------ -------- ----- ------ -------- --------
Net income $ 13,179 $ (5,055) $ 8,124 $ 2,002 $ (79) $ 1,923 $(2,144) $ 7,903
======== ========= ======= ======== ====== ======= ========= ========
Earnings per share:
Basic $1.67 $1.03 $0.87
Diluted $1.63 $1.01 $0.86
Weighted average
shares
outstanding-basic 7,872,000 7,872,000 1,162,000(9) 9,034,000
Weighted average
shares outstanding-
diluted 8,073,000 8,073,000 1,162,000(9) 9,235,000
See Notes to Unaudited Pro Forma Consolidated Statements of Income
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------------------------------
Adjust for
DOLLARS IN Cadmus Adjusted Melham Port City Adjusted Pro Forma
THOUSANDS, EXCEPT Cadmus Divestitures Cadmus Holdings, Inc. Acquisition (3) Melham Adjustments (3) Pro Forma
PER SHARE DATA ------ ------------ -------- -------------- --------------- ------ --------------- ---------
STATEMENT OF INCOME
DATA:
Net sales $393,823 $(54,406) $339,417 $123,699 $36,125 $159,824 $ - $499,241
Cost of sales 304,014 (36,306) 267,708 95,079 25,852 120,931 (5,305)(4)(5) 383,334
Selling and
administrative 62,141 (11,700) 50,441 15,038 6,673(2) 21,711 2,588(5)(6) 74,740
expenses
Restructuring 3,950 - 3,950 - - - - 3,950
charge, net
--------- ---------- --------- --------- ------- ------- ---------- ----------
Operating income 23,718 (6,400) 17,318 13,582 3,600 17,182 2,717 37,217
Interest expense 7,595 (2,039) 5,556 8,783 3,303(2) 12,086 4,818(7) 22,460
Other, net 1,343 - 1,343 (56) (281) (337) (20) 986
--------- ---------- --------- --------- ------- ------- --------- ----------
Income (loss)
before income taxes 14,780 (4,361) 10,419 4,855 578 5,433 (2,081) 13,771
Provision for
income taxes 5,690 (1,679) 4,011 2,086 230 2,316 364(8) 6,691
--------- ---------- ------- -------- ------- ------- --------- ----------
Net income $ 9,090 $ (2,682) $ 6,408 $ 2,769 $ 348 $ 3,117 $ (2,445) $ 7,080
========= ========== ======= ======= ======= ======= ========= ==========
Earnings per share:
Basic $1.16 $0.82 $0.78
Diluted $1.11 $0.78 $0.76
Weighted average 7,860,000 7,860,000 1,162,000(9) 9,022,000
shares outstanding-
basic
Weighted average 8,176,000 8,176,000 1,162,000(9) 9,338,000
shares outstanding-
diluted
See Notes to Unaudited Pro Forma Consolidated Statements of Income
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
1) Includes the results of operations of Port City Press, Inc. for the
periods prior to September 2, 1998, its date of acquisition by Melham
Holdings, Inc., adjusted as described in footnote (2).
2) Includes an increase in amortization expense resulting from purchase
accounting adjustments and additional interest expense on the debt
incurred to finance the acquisition of Port City Press, Inc. by Melham
Holdings, Inc., and adjustments for management fees charged by parent
and fringe benefits not continued:
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, 1998 MARCH 31, 1999
------------- --------------
Amortization expense $ 414 $ 69
Interest expense 3,129 527
Management fee charged by parent (800) (140)
Fringe benefits not continued (459) --
3) Includes the elimination of the results of VPI, Inc., a subsidiary of
Melham Holdings, Inc., which we did not acquire:
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, 1998 MARCH 31, 1999
------------- --------------
Net sales $ -- $ 97
Cost of sales -- 30
Selling and administrative expenses 217 372
------- ------
Operating loss (217) (305)
Interest expense -- 89
Other, net 20 22
------- ------
Loss before income taxes (237) (416)
Provision for income taxes (85) (147)
------- ------
Net loss $(152) $(269)
======= ======
4) Includes a decrease in cost of sales primarily related to
volume-related procurement savings based on our contractual purchase
programs for paper, pre-press supplies and freight:
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, 1998 MARCH 31, 1999
------------- --------------
Cost of sales $ 2,799 $ 2,099
5) Includes a reduction in depreciation expense resulting from the
revaluation of assets and a change in depreciable lives arising from
purchase accounting adjustments:
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, 1998 MARCH 31, 1999
------------- --------------
Cost of sales $ 2,506 $ 1,879
Selling and administrative expenses 342 257
6) Includes an increase in selling and administrative expenses due to an
increase in pension costs and goodwill amortization (goodwill is
amortized over 40 years), which was partially offset by a decrease
related to the termination of certain management and consulting
agreements in connection with the acquisition of Mack.
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, 1998 MARCH 31, 1999
------------- --------------
Selling and administrative expenses $ 962 $ 721
Amortization expense 3,044 2,283
7) Includes interest expense and amortization of deferred financing costs
on the debt incurred in connection with the acquisition of Mack.
8) Includes the assumed tax effect on the pro forma adjustments using an
effective tax rate of 38.5%, except for the non-deductible goodwill
amortization adjustment resulting from the acquisition Mack.
9) Includes shares issued to a Seller of Melham.